Which Stock Did Best?

In the February 2003 issue of Stock Advisor, Fool co-founder David Gardner recommended FedEx (NYSE:FDX); his brother (also a Fool co-founder) Tom recommended BorgWarner (NYSE:BWA). It was an interesting month. Both brothers picked stocks in the transportation sector, but the companies were far from the same.

FedEx is a familiar brand; it's the top name in worldwide delivery. The smaller BorgWarner, on the other hand, is a leading supplier of powertrain parts to auto manufacturers. Its products include transmissions, torques, chains, throttle bodies, hydraulic pumps, control valves, and more. So which brother ultimately found the better performer?

FedEx -- exporting capitalism

In his recommendation, David called FedEx "a pure play on world commerce, on globalization." He also noted its huge competitive advantage, namely the vast amount of capital needed to match its worldwide network of trucks, planes, hubs ... and the logistics necessary to operate each efficiently. So, he asked, just "who has the resources, information, savvy, network, and management to serve the world every day like FedEx does?"

After detailing the incredible expansion opportunities in China for airfreight demand, David concluded: "When you think about it, FedEx is an exporter of American efficiency -- exporting, in a word, capitalism. It is one of the most interesting, impressive, and profitable networks of its or any kind. It is a long-term buy."

BorgWarner -- delivering what automakers need

Even with 2003's low fuel prices (anything's low compared to today, right?), Tom liked BorgWarner's ability to help domestic automakers such as Ford (NYSE:F), Chrysler (NYSE:DCX), and General Motors (NYSE:GM) meet stricter government-mandated fuel-efficiency standards.

The same competitive advantage that caught David's eye with FedEx also attracted Tom to BorgWarner. "So why buy BorgWarner today?" Tom asked. "Because the company is well-insulated relative to its competition. With stricter environmental standards on the way, BorgWarner's products will remain in high demand."

Finally, Tom thought the valuation seemed right: "From current levels around $173 million, free cash flow should grow 12% per year. A reasonable multiple suggests to me that BorgWarner could double over the next 36 months, earning us more than 25% per year."

So who was right?
Performance to date shows FedEx is up 101% since the February 2003 recommendation; BorgWarner is up 136%. The S&P 500, by contrast, has increased 36% in that time. So after a bit more than three years, the slight edge goes to BorgWarner, which did indeed double in Tom's time frame. Shareholders of both companies are actually winners, happy to have easily topped the market (though the Gardner sibling rivalry continues).

But what counts most today, of course, is the future performance of these stocks. Both are still active Stock Advisor recommendations, and David and Tom are continually updating their thinking on these and all of their picks in the pages of Stock Advisor.

A no-strings-attached free trial will give you access to all of their recommendations (with total average returns of 55%, versus 17% for equal amounts invested in the S&P 500), as well as the 10 best stocks (five from each Gardner brother) to buy now. Click here for more information.

Rex Moore is a Fool analyst and Stock Advisor subscriber. He owns no companies mentioned in this article. This information is brought to you by the Fool's disclosure policy.