3 Stocks to Watch in Logistics

When you buy a product made in a foreign country or even another state, you probably don't think about how it got to you. But there was a complex process involved in getting it from where it was made to where you bought it. And there's a lot of money to be made in managing that process, which is why you'll want to watch logistics companies such as Expeditors International of Washington , UTi Worldwide , and household name FedEx Corporation .

Nope, never heard of themLogistics is a complicated business. It involves getting products manufactured in disparate locations globally to individual stores all over the world. But you've probably never heard of the industry's largest players even though you've benefited from their services.

Intermodal containers on a ship. Source: Wikimedia Commons.

Expeditors International is one of the industry's big names. It has over 250 locations across six continents, providing services such as the consolidation and forwarding of air or ocean freight, customs brokerage, vendor consolidation, cargo insurance, time-definite transportation, order management, and warehousing. That probably doesn't sound very exciting, and it isn't. But these are vital steps in the logistics process.

The interesting thing is that Expeditors doesn't actually own much. It acts mainly as a middle man. In other words, it arranges the path products take, but partner companies do the heavy lifting. In fact, you could think of Expeditors as a World Wide Web of freight connections.

Expeditors International has historically had no debt on its balance sheet. And it's traditionally focused on growing slowly via organic expansion instead of by acquisition. That's made for a strong company. For example, although revenues and earnings dipped during the 2007-to-2009 recession, its financial strength allowed it to keep raising its dividend -- which it's done annually for over a decade. For conservative investors, Expeditors would be a good company to watch in this space.

The fixer-upperOn the other side of the spectrum from Expeditors, which is a nearly $9 billion-market-cap company, UTi Worldwide has a market cap of just about $1 billion. Both companies do similar things, but they differ in more than just size. And that's what makes UTi something of a dark horse in the space.

While Expeditors has grown organically, UTi had historically grown through acquisition. That left the company with incompatible systems and a collection of different corporate cultures. It also helped lead to a debt overhang and fledgling results that nearly led the company to be acquired by a rival. So why look at UTi at all? Often you learn as much from watching an industry leader as you do from watching industry laggards.

UTi has put new financing in place, and it has a new management team and an entirely new approach to running its business. While there's no way to tell whether these efforts will work out as planned, if they do UTi could see results turn higher over the long term. And even if they don't, keeping an eye on the process will provide you an education on the logistics business that watching one of the industry's most successful names, like Expeditors, won't.

Source: Thomas R Machnitzki, via Wikimedia Commons.

I know that name!But logistics isn't just about being behind the scenes. So if you're watching this industry, you'll also want to keep an eye on some names you know well, like FedEx.

Unlike Expeditors or UTi, FedEx owns and operates a fleet of airplanes and trucks that brings goods directly to your door -- and the doors of millions of other people around the world daily. This is a different model, and one that comes with a very different cost structure -- notably, the expense of buying and maintaining capital equipment.

That said, FedEx operates in three main areas: overnight delivery (almost 60% of its business), ground shipping (nearly 30%), and less-then-truckload transportation (a little over 10%). The first two are things you're probably familiar with, and the last is really just taking a truck and filling it with products from multiple customers as opposed to just a single customer. In the end, FedEx is a very different company in the logistics business, really providing services on an individual, perhaps consumer, basis, but it is just as vital to global trade as Expeditors, which works more on the business-to-business side of things.

The good, the bad, and the one you've heard ofLogistics is a complicated and fragmented business, but it is vital to world trade -- from companies to individuals. If you're watching the logistics sector, you should keep an eye on leaders such as Expeditors, but also take note of laggards such as UTi. You'll learn a lot from both, even if you don't choose to own both. But the industry is broader than these largely business-to-business players. That's why you'll want to watch companies such as FedEx, which deliver right to your door. As the Internet brings retailers and consumers closer together, businesses like this are becoming increasingly vital to commerce.

The article 3 Stocks to Watch in Logistics originally appeared on Fool.com.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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