Motley Fool: A logistics leader

E-commerce stocks have gotten smashed this earnings season, as more people return to in-store shopping. One e-commerce stock delivered a standout first-quarter report, though: GXO Logistics (NYSE: GXO) reported revenue growth of 14% year-over-year, and net income more than doubling.

GXO is the world’s biggest pure-play contract logistics company, operating high-tech warehouses for multinational companies such as Apple, Nike, Nestle and Whirlpool. The company is bullish on e-commerce, and its investments in areas like reverse logistics (processing returns) make it attractive to retailers selling online.

If a recession arrives, the company is prepared, and will aim to grab market share. Nearly 40% of its contracts are “cost-plus,” meaning that GXO charges customers a price based on a fixed profit rate over its own costs. That insulates it from inflationary pressures and also helps protect its profit margins. The company also has minimum volume requirements in many of its contracts to protect itself, and uses take-or-pay clauses, ensuring that customers pay a fee if they don’t ship the volumes they’ve committed to.

GXO is penetrating an addressable market worth $430 billion at a double-digit growth rate. And the stock recently looked well-priced, trading at a forward-looking price-to-earnings (P/E) ratio near 19. As other e-commerce stocks face headwinds, GXO looks well-positioned, and should win no matter which companies prosper at the retail level. (The Motley Fool has recommended GXO Logistics.)

Ask the Fool

Q: What’s hyperinflation? Are we experiencing it now in America? – B.H., Honolulu

A: Not at all. It’s true that the U.S. year-to-year inflation rate in March reached 8.5%, the highest rate in 40 years and well above the average annual rate of around 3.1% – but that’s nowhere near hyperinflation.

Hyperinflation is extreme, rather rare and typically short-lived when it happens. Definitions vary, but it’s often defined as a monthly inflation rate of at least 50%; it’s also been used to describe a three-year cumulative inflation rate of 100% or more. In an environment of hyperinflation, prices for common goods can double within days – or even hours.

The folks at Ernst & Young Global recently opined that the following countries were experiencing hyperinflationary economies: Argentina, Iran, Lebanon, South Sudan, Sudan, Suriname, Turkey, Venezuela, Yemen and Zimbabwe.

Q: When investing in stocks, how big a gain should I shoot for before selling? – T.W., Columbia, Missouri

A: It’s best not to aim for any particular gain, but to invest in financially strong companies that seem to have the most promising long-term growth prospects. Once you do, plan to hang on for at least five years, if not a decade or two – while keeping up with those companies’ progress and developments, to keep an eye out for any red flags and make sure they remain promising.

Yes, you might sell after netting a 50% or 100% gain, but that can mean you miss out on much bigger gains. Imagine selling shares of Apple or Microsoft years ago after doubling your money: Many investors regret doing just that. Great wealth built via the stock market often happens over many years.

My dumbest investment

My dumbest investment was in Black Elk Energy bonds. Total loss. I learned that bonds aren’t as safe as stocks after all. – R.L., online

The Fool responds: The Black Elk Energy story is quite a cautionary tale.

The company was convicted of eight felonies in connection with a 2012 explosion at an offshore oil production platform that killed three subcontracted workers and severely injured others.

Meanwhile, the Platinum Partners hedge fund had loaned millions to the company and helped it borrow much more via a bond sale.

The hedge fund itself didn’t appear to be of the best quality, having reportedly invested in (among other things) penny stocks, payday lenders and a diamond mine.

Indeed, some of its executives ended up convicted on securities fraud charges. Black Elk investors like you didn’t have much of a chance.

Bonds are essentially loans. Many, such as those issued by the U.S. government, are far safer than stocks – but they generally offer lower returns over the long run.

There are other kinds of bonds, though, including corporate ones issued by companies to raise money.

The bonds of blue-chip companies with low risk of default are fairly safe, but offer relatively low interest rates; risky companies need to offer high rates for their bonds – which are thus known as “junk bonds.”

If you buy corporate bonds, research the companies first, recognizing very high interest rates as possible red flags.