5 Best Transportation Stocks To Buy Heading Into 2023

In this article, we discuss 5 best transportation stocks to buy heading into 2023. If you want to see more stocks in this selection, check out 10 Best Transportation Stocks To Buy Heading Into 2023. 

5. Canadian Pacific Railway Limited (NYSE:CP)

Number of Hedge Fund Holders: 41

Canadian Pacific Railway Limited (NYSE:CP) owns and operates a transcontinental freight railway in Canada and the United States. It transports bulk commodities and merchandise freight. On October 26, Canadian Pacific Railway Limited (NYSE:CP) declared a quarterly dividend of $0.19 per share, in line with previous. The dividend is payable on January 30, 2023 to shareholders of record on December 30. It is one of the best transportation stocks to monitor. 

On November 28, Deutsche Bank analyst Amit Mehrotra upgraded Canadian Pacific Railway Limited (NYSE:CP) to Buy from Hold with a price target of $98, up from $80.

According to Insider Monkey’s third quarter database, 41 hedge funds were long Canadian Pacific Railway Limited (NYSE:CP), compared to 42 funds in the earlier quarter. Chris Hohn’s TCI Fund Management is the biggest position holder in the company, with 55.8 million shares worth $3.7 billion. 

Here is what Pershing Square Holdings specifically said about Canadian Pacific Railway Limited (NYSE:CP) in its Q2 2022 investor letter:

“Canadian Pacific Railway Limited (NYSE:CP) is a high-quality, inflation-protected business led by a best-in-class management team that operates in an oligopolistic industry with significant barriers to entry. With an improving volume and pricing outlook combined with the upcoming transformational acquisition of Kansas City Southern (“KCS”), we believe that CP’s prospects are bright.

CP reported revenue growth of 7% in the second quarter as pricing and mix, fuel surcharge pass-throughs and foreign exchange more than offset a small decline in volumes. CP is leveraging the strong pricing environment to renew contracts at an average price increase of over 6%. Pricing directly benefits earnings as rails pass on increases in fuel and other expenses to customers through contractual fuel surcharges and CPI escalators. In addition to earnings growth, high inflation should help rail transportation take share from trucking and lead to incremental volume growth over time. Customers are choosing cheaper transportation solutions as prices rise, and CP’s mission-critical rail service is often the cheapest or only viable method for transporting heavy freight over long distances. High fuel prices and wage gains also disproportionately increase the cost of trucking, which is up to three times less fuel efficient and much more labor intensive than rail transportation.

The demand outlook for CP continues to improve, especially given the current geopolitical environment. Russia’s invasion of Ukraine and the resulting supply disruptions have boosted demand for Canadian exports such as grain and potash. Deglobalization has also increased the likelihood of major North American onshoring and energy production, which will accelerate CP’s volume growth in the future. Total volumes declined by 2% in the second quarter due to the smaller than average Canadian grain harvest, while volumes excluding grain increased by 5%. The grain headwind will flip to a tailwind in the fall as CP anticipates a normal grain crop, which supports management’s double-digit volume and revenue growth outlook for the second half of 2022. …” (Click here to read the full text)

4. Delta Air Lines, Inc. (NYSE:DAL)

Number of Hedge Fund Holders: 53

Delta Air Lines, Inc. (NYSE:DAL) is a Georgia-based provider of air transportation for passengers and cargo in the United States and internationally. It is one of the best transportation stocks to consider for 2023. On December 5, Delta Air Lines, Inc. (NYSE:DAL) made an initial deal with the union representing its pilots for pay raises and improved benefits such as paid vacation and retirement contributions in order to avert strikes.

On December 5, Morgan Stanley analyst Ravi Shanker chose Delta Air Lines, Inc. (NYSE:DAL) as his new “Top Pick” for 2023 among North American airlines, replacing Southwest Airlines Co. (NYSE:LUV). The analyst remains bullish on the air travel outlook for “the third year in a row” and his estimates for the sector are 43% greater than consensus for 2023 and 18% for 2024, on average. The analyst has an Overweight rating and a $65 price target on Delta Air Lines, Inc. (NYSE:DAL) shares.

According to Insider Monkey’s data, Delta Air Lines, Inc. (NYSE:DAL) was part of 53 hedge fund portfolios at the end of September 2022, compared to 49 in the prior quarter. Jim Simons’ Renaissance Technologies is the largest stakeholder of the company, with 8.8 million shares worth $247.3 million. 

Here is what Miller Value Partners specifically said about Delta Air Lines, Inc. (NYSE:DAL) in its Q3 2022 investor letter:

“Delta Air Lines, Inc. (NYSE:DAL) ($29.42) is a high-quality airline (yes, there really is such a thing!).  It didn’t issue any equity in the pandemic. It focuses on delivering a superb customer experience and has brand loyalty (including a stable revenue stream from partner American Express, growing at 20%/ year). Maybe the best evidence: it’s managed to outperform the S&P 500 over the past decade despite a horrible pandemic ending point (+13.2% vs. 11.7%1 ). It trades for 4x 2024 earnings! If it eventually trades at Southwest’s historical valuation, it implies this stock should double as well.”

3. CSX Corporation (NASDAQ:CSX)

Number of Hedge Fund Holders: 61

CSX Corporation (NASDAQ:CSX) is a Florida-based company that provides rail-based freight transportation services. The company offers rail services, transportation of intermodal containers and trailers, rail-to-truck transfers, and bulk commodity operations. On October 20, CSX Corporation (NASDAQ:CSX) reported a Q3 GAAP EPS of $0.52 and a revenue of $3.9 billion, outperforming Wall Street estimates by $0.03 and $150 million, respectively. Revenue over the period jumped 18.5% year-over-year, driven by higher fuel surcharge, pricing gains, a 2% increase in volumes, and a rise in storage and other revenues.

On November 29, Barclays analyst Brandon Oglenski raised the price target on CSX Corporation (NASDAQ:CSX) to $38 from $35 and maintained an Overweight rating on the shares. CSX Corporation (NASDAQ:CSX) stands to benefit from leveraging “industry leading” service outcomes with long-term growth from customer projects, the analyst told investors. He said the shares “should appreciate from the current low end of industry valuation.”

According to Insider Monkey’s Q3 data, 61 hedge funds were bullish on CSX Corporation (NASDAQ:CSX), compared to 63 funds in the prior quarter. Eric W. Mandelblatt’s Soroban Capital Partners is the leading position holder in the company, with 57.6 million shares worth $1.5 billion. 

Here is what ClearBridge Investments Global Infrastructure Value Strategy has to say about CSX Corporation (NYSE:CSX) in its Q4 2021 investor letter:

“On a regional basis, the U.S. and Canada were the top contributors to quarterly performance, of which U.S. rail operator CSX was among the lead performers. CSX is one of five leading North American rail companies, with over 21,000 miles of rail, covering 23 states and 40+ ports. CSX is engaged in the transportation of rail freight in the Southeast, East, and Midwest via interchange with other rail carriers, to and from the rest of the U.S. and Canada. CSX performed well during the quarter after the company beat market expectations on its third-quarter results. The beats were largely driven by strong pricing, which could be hitting record highs, and healthy commodity/coal volume driven by the current energy crisis.”

2. Union Pacific Corporation (NYSE:UNP)

Number of Hedge Fund Holders: 74

Union Pacific Corporation (NYSE:UNP) is a Nebraska-based company that operates in the railroad business in the United States. The company offers transportation for grain products, fertilizers, refrigerated products, coal and renewables, ethanol, and petroleum. Union Pacific Corporation (NYSE:UNP) is one of the premier transportation stocks to invest in. 

On November 28, Deutsche Bank analyst Amit Mehrotra raised the price target on Union Pacific Corporation (NYSE:UNP) to $238 from $216 and reiterated a Buy rating on the shares, citing a positive outlook for transportation equities in 2023.

Among the hedge funds tracked by Insider Monkey, 74 funds reported owning stakes worth $6.4 billion in Union Pacific Corporation (NYSE:UNP) at the end of Q3 2022, compared to 65 funds in the prior quarter worth $6.3 billion. Ken Fisher’s Fisher Asset Management is a prominent stakeholder of the company, with 5.3 million shares worth over $1 billion. 

Here is what Diamond Hill Capital Management specifically said about Union Pacific Corporation (NYSE:UNP) in its Q2 2022 investor letter:

“Union Pacific Corporation (NYSE:UNP) is a large railroad company that carries freight across the western US and between Canada and Mexico. It transports a variety of industrial goods, raw materials and containerized freight between major US ports, industrial hubs and international gateways. The goods that Union Pacific and other railroads transport are fundamental inputs in the economy and are resilient to long-term trends in the business cycle. We believe Union Pacific offers a compelling investment opportunity as its substantial infrastructure investments, relative cost advantages, limited leverage and the essential nature of the products it delivers provides the company with what we believe is one of the widest moats in the transportation sector. We also like that Union Pacific has a shareholder-oriented management team that is focused on growing earnings while returning capital to shareholders.”

1. Uber Technologies, Inc. (NYSE:UBER)

Number of Hedge Fund Holders: 142

Uber Technologies, Inc. (NYSE:UBER), an American mobility technology company, is one of the best transportation stocks to buy heading into 2023. For Q4, Uber Technologies, Inc. (NYSE:UBER) anticipates gross bookings to grow 23% to 27% year-over-year on a constant currency basis. 

On October 24, Cowen analyst John Blackledge maintained an Outperform rating on Uber Technologies, Inc. (NYSE:UBER) but lowered the price target on the shares to $70 from $76. The analyst expects Uber Technologies, Inc. (NYSE:UBER)’s Q3 2022 Gross Bookings at the high end of the guide, driven by the ongoing recovery in Mobility and expansion of core EBITDA margins.

According to Insider Monkey’s Q3 data, Uber Technologies, Inc. (NYSE:UBER) was part of 142 hedge fund portfolios, compared to 129 in the prior quarter. Philippe Laffont’s Coatue Management is a prominent stakeholder of the company, with 16.6 million shares worth $440.6 million. 

Artisan Partners made the following comment about Uber Technologies, Inc. (NYSE:UBER) in its Q3 2022 investor letter:

“During the quarter, we began new GardenSM campaigns in Uber Technologies, Inc. (NYSE:UBER) and Shopify. In July, we initiated our position in Uber, a leader in global ride-hailing and online food delivery. We believe the company is well positioned to benefit from strong secular tailwinds in both of its core businesses. Earlier this year, management outlined a plan at its investor day to achieve $4 billion of free cash flow by 2024, an encouraging commitment given investors have maligned the company for years of being unprofitable. We witnessed solid progress toward achieving this goal in the company’s most recent earnings results, where it beat expectations for the quarter on both fronts and delivered positive FCF for the first time. The company also indicated it isn’t seeing any evidence of slowing demand. We recognize the execution risk associated with Uber achieving its long-term targets, and the path likely won’t be linear, which is why we are keeping our position size modest until we see signs of continued operational momentum in the coming quarters.”

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