In this article, we discuss 5 best transportation stocks to buy now. If you want to read why we think transportation stocks are poised for growth in the future, read 10 Best Transportation Stocks to Buy Now. There you can also see some of the hottest transportation stocks loved by elite hedge funds.
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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