Billionaire Bill Gates is one of the most respected business leaders in the world. Gates co-founded Microsoft and was its CEO through its most rapid growth years in the '80s and '90s as Microsoft came to dominate the market for PC operating systems and productivity software in its Office suite, positions it still enjoys today.
Gates stepped down from the leadership post in 2000 and resigned as chairman of the board in 2014. Since then, he has devoted himself to philanthropy through the Bill & Melinda Gates Foundation, but he is still one of the richest people in the world with a net worth of $103 billion.
Much of that wealth is held in the foundation, which has $45 billion in assets under management. Gates doesn't directly manage the endowment, a task given to Cascade Management Company, but he does oversee it as a trustee. Not surprisingly, the trust's top holding is Microsoft, while the second-largest is Berkshire Hathaway, whose CEO, Warren Buffett, is a close friend and associate of Gates.
The fund is largely made up of safe blue chip stocks like those two, but the Gates Trust purchased two stocks in the third quarter that show a clear directional bet heading into 2025.
Image source: Getty Images.
Gates adds two transportation stocks
In the third quarter, the foundation trust added 1 million shares each of FedEx (FDX +0.19%) and Paccar (PCAR +0.23%), two highly cyclical stocks, for roughly $215 million and $100 million, respectively.
FedEx is seen as a bellwether for the global economy as the company is a global leader in package delivery and less-than-truckload (LTL) logistics, while Paccar is one of the biggest truck manufacturers in the world, and owns brands like Kenworth and Peterbilt.
Trucking and transportation is a highly cyclical business as demand is closely correlated with economic growth. When the economy expands, it generally means businesses and consumers need more materials and products. Conversely, in a recession they tend to cut back, leading to lower demand for trucking and transportation services.
Gates hasn't commented on the purchases of FedEx or Paccar, but the buys signal a bullish stance on the transportation sector and the greater economy in 2025. Lower interest rates and the potential impact of various Trump policies could stimulate the sector this year. Potential policy impacts include tariff threats accelerating imports and corporate tax cuts or bonus depreciation that could free up capital to invest or spend on transportation.
Some industry insiders have observed a normalization in freight economics between carriers and shippers and pronounced an end to the freight recession.
One stock to buy if Gates is right
One other stock that looks set to win on a transportation recovery is XPO (XPO +2.06%), the third-largest LTL carrier in North America behind FedEx and Old Dominion Freight Lines. XPO has already delivered impressive results in a market with little volume growth so industry tailwinds could propel it even further in 2025.
The company, which has spun off GXO Logistics and the RXO truck brokerage to focus on North American LTL, has been able to achieve price increases through customer improvements in on-time and damage claims. Cost efficiencies along with higher prices have boosted the company's operating ratio, a key industry metric that is the inverse of operating margin.
In the third quarter, the North American operating ratio fell from 86.2% to 84.2%, and the company is making progress on lowering it to 81% by 2027. Yield, or pricing, was up 6.7%, which drove adjusted earnings per share (EPS) up 16% to $1.02.
NYSE: XPO
Key Data Points
XPO also has a number of competitive advantages, including that it's the only freight company that can manufacture its own trailers, allowing it to scale up in an expansion, have better and more cost-efficient control of its fleet, and make repairs as needed. It also owns its own driving school, allowing it to develop its own source of labor.
The company is expanding by adding new terminals, capitalizing on the earlier bankruptcy of rival Yellow, which will grow its customer base and make it more appealing to existing customers. It's also developed technology to improve on-time rates, give shippers real-time visibility, and improve trailer utilization and safety.
XPO may seem expensive at a price-to-earnings ratio of 44, but the LTL business has a lot of leverage as margins can swing wildly with changes in capacity and demand, and profit margins could expand rapidly under the right circumstances.
After gaining 65% over the last year, the stock has more room to run in a bullish environment for transportation stocks. If FedEx and Paccar break out, look for XPO to soar.
![XPO LTL truck road side profile XPO_Drivers_01_0488 web[6]](https://g.foolcdn.com/image/?url=https%3A%2F%2Fg.foolcdn.com%2Feditorial%2Fimages%2F795964%2Fxpo-ltl-truck-road-side-profile-xpo_drivers_01_0488-web6.jpg&w=3840&op=resize)
