In this article we take a look at the 10 best transportation stocks to buy now.
Transportation is one of the most resilient industries, with exposure to primary and essential sectors like freight, trucking, shipping and delivery. Despite macroeconomic challenges and significant changes in the industry, transportation stocks offer value and growth. The Dow Jones Transportation Average, which tracks 20 key transportation stocks in the U.S., has gained about 14% over the last 12 months. Transportation is one of the hardest hit industries amid the coronavirus crisis. As manufacturing slowed, freight operations came to a halt and GDP shrunk, transportation companies started to suffer. But the declines offer a good investment opportunity for long-term investors as there’s a big room for growth.
Growth Catalysts for Transportation Stocks
According to a Deloitte report, the transportation industry will undergo major shifts in the coming years. World air cargo traffic growth is slowing down, stagnant at almost 2.6% over the last 10 years. Less-than-expected global demand, oversupply of ships, fleet under-utilization and weakening economic outlooks worldwide are also challenging the transportation companies. Increasing wages of truckers is also becoming a challenge. But the report said that major transportation companies are already innovating and dealing with the challenges in a creative way. For example, German logistics company DB Schenker started a “tri-modal” transportation service, which offers customers rail, road, and air freight in one bundled offering. So far the company is moving 21 tons of cargo from China to Brazil in 24 days with this service, compared to about 50-55 days it took using ocean freight. United Parcel Service also launched its Access Point system to leave parcels at neighborhood businesses rather than on doorsteps when recipients are not home. These innovative ways to cut costs and increase efficiency will help transportation stocks gain value in the future.
A Strong Rebound
In October 2020, Moody’s changed its outlook for North American rail transportation industry to stable from negative. Revenue in the industry is expected to grow by 4.25% to 6% over the next 12-18 months, as freight volumes improve, the report said. This comes after a 10% drop amid the coronavirus pandemic. Moody’s also expects shipments of most other types of freight to increase over the next 12-18 months. Shipments of grain are also expected to grow at a high single-digit rate for the foreseeable future on the back of good corn, wheat and soybean harvests. These insights show that even though the transportation industry took a beating during the coronavirus pandemic, it is primed for recovery and growth in the future.
The e-commerce boom also presents a huge opportunity for transportation stocks. Despite the challenges and insatiable demand for speedy deliveries, transportation companies have started to benefit from the explosive demand that came with the rising e-commerce sales worldwide. Transportation companies are now offering services for same-day delivery of goods and fulfilling “last mile” orders. The companies have started to use intermodal transportation, a combination of two or more different shipping modes, to move freight to final destinations. These trends will help transportation stocks grow in the future.
Just like transportation sector, the world’s financial markets are undergoing major transformations. The hedge fund industry’s reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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Let’s starting looking at the 10 best transportation stocks to buy now. We selected these stocks based on the positions of elite hedge funds, fundamental financial health and growth catalysts for the future.
C.H. Robinson ranks 208 on the Fortune 500 list. The company offers transportation and third-party logistics services. Recently, the stock rallied after the company posted upbeat Q4 results. Revenue in the period jumped close to 20% to $4.5 billion. The revenue growth was driven by higher pricing and strong volume across most of the company’s service lines. Operating income in the period came in at $206.8 million, versus the consensus estimate of $179.6 million.
Cliff Asness’ AQR Capital Management owns 1.51 million shares of C.H. Robinson, worth 154.29 million. Overall, 22 hedge funds tracked by Insider Monkey held long positions in the company entering the fourth quarter. First Eagle also has a very large position in CHRW. Here is what they said in their 2020 Q3 investor letter:
“As North America’s largest freight broker, C.H. Robinson benefited from a rebound in truck freight pricing, which continued to recover from the dislocations felt earlier in the year. Truck demand has spiked as consumers increasingly spend on hard goods that require distribution rather than experiences and services, while both truck and driver supply has remained constrained.”
Florida-based Landstar ranks 9th on the list of 10 best transportation stocks to buy now. The company specializes in third-party logistics. The company recently reported close to 40% growth in its Q4 revenue, beating the consensus estimate by $17 million. Gross profit in the period came in at $182.4 million, representing a growth of 23% on a year-over-year basis.
For the first quarter of 2021, the company expects revenue in the range of $1.10-$1.15 billion and EPS of $1.55-$1.65.
As of the end of the third quarter, 23 hedge funds tracked by Insider Monkey held stakes in the company. Here is what Ensemble Capital said about LSTR last year:
“Landstar, which provides trucking logistics services, bounced around during the quarter as investors have been trying to get a read on whether the US manufacturing sector is about to rebound, or is stuck in neutral. Modest weakness in truck loads shipped and sharp weakness in revenue per load for Landstar, is indicative of weak demand for moving manufacturing goods around the country. But having owned Landstar for many years, we’re well accustomed to the mini cycles the company goes through. The last time the company posted results as weak as they are currently, was in mid-2016. Over the following year, declining revenue reversed and shot 20% higher with the stock appreciating by 40%. The cyclical behavior of Landstar’s results aren’t lost on the market though, which is why the stock still returned 20% this year even as revenue and earnings declined.”
Expeditor ranks 389 on the list of Fortune 500 companies. It is a global logistics and freight forwarding company, with operations in 103 countries. In November, the company posted Q3 GAAP EPS of $1.12, above the Wall Street estimates by $0.13. Revenue in the period jumped 18.8% to reach $2.46 billion, above the Wall Street forecast by $70 million. In May 2020, Expeditor bought Fleet Logistics’ Digital Platform to support its online LTL shipping platform, Koho.
Jean-Marie Eveillard’s First Eagle Investment Management is one of the 31 hedge funds having stakes in Expeditor as of the end of the third quarter. The hedge fund owns $218.83 million worth of shares of the company.
Canada-based Canadian Pacific owns about 20,100 kilometers of tracks in six provinces of Canada and into the U.S., stretching from Montreal to Vancouver, and also serves Minneapolis, Milwaukee, Detroit, Chicago, and Albany and New York. The company recently posted better-than-expected Q4 results and upped its outlook. Scotiabank’s Konark Gupta upgraded Canadian Pacific shares to Sector Outperform from Sector Perform and increased his price target, citing unique growth opportunities. RBC analyst Walter Spraklin also gave bullish comments for the company after the earnings report.
As of the end of the third quarter, 32 hedge funds tracked by Insider Monkey held stakes in Canadian Pacific.
Arkansas-based J.B. Hunt is one of the biggest trucking companies in the world, with 24,000 employees, and over 12,000 trucks. The company’s fleet consists of over 100,000 trailers and containers. In January, J.B. Hunt Transport Services (NASDAQ:JBHT) shares gained value after the company beat fiscal fourth-quarter earnings. GAAP EPS in the quarter came in at $1.44, beating the Street estimates by $0.13. Revenue in the period jumped 12% year over year and beat the Wall Street estimates by $160 million.
Lee Hicks and Jan Koerner’s Park Presidio Capital owns 440,000 shares of the company, worth $55.61 million. It is one of the 38 hedge funds that held stakes in the company as of the end of September.
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XPO is a Connecticut-based transportation company that has over 50,000 businesses as customers worldwide, including 69 of the Fortune 100. The company has operations in over 35 countries. In the third quarter, XPO posted revenue of $4.22 billion, compared the Wall Street estimate of $3.86 billion. EPS in the period came in at $0.84, beating the Wall Street estimates of $.039.
For the full-year 2020, the company expects adjusted EBITDA of $1.35 billion, versus the consensus of $1.25 billion.
A total of 39 hedge funds out of 816 tracked by Insider Monkey held stakes in XPO entering the fourth quarter. Here is what Argosy Investors said about XPO in its 2020 Q3 letter:
“I purchased shares of XPO Logistics (XPO) based on our research of the trucking logistics industry. I believe trucking at present is a commoditized and low-return business. XPO Logistics crown jewel is its LTL (Less-Than Truckload) business. Old Dominion Freight Line (ODFL) has been an extremely successful company over the last few decades and its stock price appreciation and valuation reflect that. Their focus is providing LTL services and XPO Logistics is among its primary competitors.
Route-based businesses in general can be attractive business models because of the local economies of scale they enjoy. From uniform rental companies like Cintas to pest control companies like Terminix and many more, these businesses benefit from high route densities. You might easily imagine how one route-based company A may have the same revenue as another, Company B, but if the travel between stops represents 100 miles for Company A and 40 miles for Company B, Company B will be able to generate the same revenue as Company A but with less employees and less fuel and vehicle maintenance costs, or alternatively generate more revenue than Company A but with the same labor, fuel, and vehicle maintenance.
LTL logistics fit this route-based density model because the nature of LTL shipments requires combining multiple shipments together into full truckloads. The more customers an LTL shipper has, the more it is able to group those shipments together efficiently at warehouses. These warehouses group shipments heading to the same area together, and enable XPO to fill its trucks heading to any given destination as much as possible.
LTL and related services represent 2/3 of XPO’s revenue and truckload logistics (the commoditized piece) represents the rest. I think XPO’s investments in technology could enable additional benefits on the truckload side in the long-term, but I am not betting on that.
What is strange is that ODFL and XPO have roughly the same LTL revenues, but ODFL is valued at $23 billion, while XPO is valued at $13 billion. XPO is less profitable and growing more slowly than ODFL, which certainly accounts for some portion of the gap. Our bet is that XPO is highly motivated to close the performance gap over time, which would provide a double benefit because profits would increase at an accelerated rate and the market might value the business closer to where ODFL trades.”
4. Delta Air Lines, Inc. (NYSE: DAL)
Delta is one of the biggest airliners and carriers. In the fourth quarter, Delta’s cargo revenue jumped 10% to $204 million, a major improvement over the last 2 quarters. Overall, the company met the Street’s expectations for Q4 with an adjusted pretax loss of $2.1 billion on $4 billion in revenue.
The company’s CEO Ed Bastian recently said that he expects domestic travel demand to surge this summer.
A total of 43 hedge funds tracked by Insider Monkey held stakes in Delta entering the fourth quarter.
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UPS ranks 3rd on the list of 10 best transportation stocks to buy now. UPS operates cargo airline, freight-based trucking operation and drone delivery operations. In the third quarter, UPS posted better-than-expected results amid rising e-commerce operations and demand. The company posted a net income of $2.24 per share, compared to $2.01 per share in the same period last year. Revenue in the period totaled $21.24 billion, up from $18.32 billion in the same period in 2019.
Eashwar KrishnanDelta’s Tybourne Capital Management owns 1.22 million shares of UPS as of the end of the third quarter, worth $203.7 million. A total of 57 hedge funds held stakes in UPS as of the end of the third quarter.
FedEx Corporation is a world-renowned shipping company, known for its overnight shipping service and systems to track packages. In January, Argus Research gave bullish comments about FedEx based on its valuation and earnings estimates. The firm has a Buy rating for the stock with a price target of $305.
Michael Larson’s Bill & Melinda Gates Foundation Trust owns 3.02 million shares of the shipping company, worth $760.85 million. As of the end of the third quarter, 71 hedge funds held stakes in the company. Here is what Cartenna Capital said about FDX in its 2020 Q3 letter:
“FedEx Corporation (“FDX”) was the Fund’s largest positive contributor to performance during Q3, and we remain very bullish on the entire parcel sector into Q4. When we initially purchased shares of FedEx, it represented an extremely attractive idiosyncratic opportunity embedded within our constructive transportation market outlook. For the past several years, we have generally held a negative bias on FedEx operations as they have routinely suffered from both macroeconomic headwinds (US-China trade war) and company specific issues that have been self-inflicted (i.e. lost Amazon as a customer, poor TNT acquisition/ransomware attack). However, as FedEx began their Fiscal Year 2021 in June, many of these headwinds were poised to reverse and become tailwinds. First, capacity utilization across transportation supply chains was (and still is) very high, stemming from a Covid-19 induced inflection in ecommerce spending. This dynamic has led to increased pricing power for parcel delivery services. Second, we believed that newfound capital discipline at both UPS and FedEx would allow this tight market to last for an extended period. More specifically, FDX changed their executive compensation in Fiscal Years 2021-2023 to include a 25% weighting that incentivizes capital expenditures to remain near 6% of revenue, a meaningful reduction from elevated spending in recent years. Similarly, the legendary Carol Tome came out of retirement to run UPS and used the July earnings calls to highlight capital discipline by repeatedly saying “it’s all about being better, not bigger.” Third, in Europe, FedEx recently achieved interoperability between its FedEx and TNT networks. This will allow for the two sub-scale networks to combine and achieve meaningful profit improvement. The three tailwinds cited above are just a few that we have selected from a long list of both industry and company-specific reasons to be excited about FedEx (and UPS). We have taken some profits recently but will look to build back our stake in FDX as opportunity arises.”
Founded in 1862, Union Pacific is a major freight hauler, with 8,300 locomotives. It’s one of the world’s largest transportation companies. In January, Union Pacific shares rallied after the company said it now expects Q4 operating revenue of $5.1 billion, versus the consensus estimate of $5.05 billion. The company expects operating expenses of $3.1 billion and operating income of $2.0 billion.
Union Pacific tops the list of 10 best transportation stocks to buy now, as 74 hedge funds tracked by Insider Monkey held stakes in the company entering the fourth quarter, up from 68 funds a quarter earlier.
Please also see 10 Cheap Stocks To Buy According To Billionaire Lee Cooperman and 11 Best Quantum Computing Stocks To Buy.
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Disclosure: None. 10 Best Transportation Stocks To Buy Now is originally published at Insider Monkey.
