We recently published a list of 12 Best Freight Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where XPO, Inc. (NYSE:XPO) stands against other best freight stocks to buy according to hedge funds.

Freight stocks are often perceived as boring if compared to the flashy technology and AI stocks, but they are actually the blood of the global economy – the freight sector is the backbone of trade and the gross domestic product of every country. In essence, any good produced and sold was almost certain to have been involved in transportation, often several times at different stages of the supply chain. This means that freight companies are able to capture a small share of the giant gross domestic product, which makes the overall sector a huge size.

The key growth drivers of freight activity are trade volumes, fuel prices (cheap fuel is a huge profitability boost), public spending on large projects like infrastructure, and the level of manufacturing activity. Consequently, freight stocks thrive during periods of strong economic growth, supported by affordable energy prices and low interest rates, as well as a calm geopolitical landscape that ensures the free flow of goods. Conversely, the whole transportation sector tends to underperform during sluggish economic conditions, featuring mediocre construction and manufacturing activities, slowdowns in both public and private spending, and other macro headwinds like high interest rates and inflation, which pressure consumption on a large scale.

READ ALSO: 10 Best Transportation Stocks to Buy According to Hedge Funds

The year 2024 was not the best for freight activity in the US, as almost 2 years of high interest rates and past inflation finally took a toll on consumption, industrial activity, and construction. Last year, while strong from a valuation standpoint and stock market returns, it actually brought a significant slowdown in consumer spending, residential construction, automotive volumes, and industrial production. There were pockets of strength in data center construction, public construction (as fueled by the Infrastructure Act), and some industrial niches, but that was not enough to fuel growth for freight stocks. As a result, the whole sector underperformed the broad market and reached a new 5-year low (relative to the broad market) by year-end. Furthermore, the new US administration brought even more challenges into 2025 – the cut in public spending is likely to eliminate some of the pockets of strength mentioned above, while the tariff threats are a huge headwind for commerce and the flow of goods.

The Atlanta Fed and other reputable research boutiques have drastically cut their estimates of GDP growth for 2025, which puts transportation stocks out of favor again. However, according to the principles of value investing, the trough of the business cycle, when stocks are trading at or near their lows, is the best time to acquire good companies at exceptional prices. As legendary investors like Warren Buffet and Peter Lynch have taught us, valuations certainly do matter for long-term stock returns, meaning that periods of underperformance are opportunities to acquire stocks at bargain prices.

We also believe that the long-term picture remains favorable, and there are reasons to expect a reacceleration in GDP growth and freight volumes at some point in 2H 2025 or 2026, once the current challenges are navigated. The main reason for long-term optimism is that the outlook on the construction sector is favorable due to a chronically undersupplied residential housing market and the aging of infrastructure in the US. Second, industrial activity will also have to rebound at some point, and we believe that lower interest rates over time will unmute the “Roaring 2020s” tailwinds in such areas as electric vehicle production, energy grid, and automation – all of these will bring higher volumes for the freight sector. The key takeaway for readers is that we may be at an opportune time to acquire freight stocks at bargain prices ahead of a broad economic recovery over the next 1-2 years.

Our Methodology

We used a stock screener and thematic ETFs to shortlist 40-50 companies operating in the freight space, which includes the “Integrated Freight & Logistics” and “Trucking” industries. Then we compared the list with our proprietary database of hedge funds’ ownership and included in the article the top 12 stocks with the largest number of hedge funds owning the stock as of Q4 2024. All stocks are ranked in ascending order.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

XPO, Inc. (NYSE:XPO)

Number of Hedge Fund Holders: 45

​​XPO, Inc. (NYSE:XPO) is a transportation company that follows a more specialized strategy. It primarily provides Less-Than-Truckload operations in North America but has some transportation activity in Europe as well. With over three decades of experience, XPO leverages its own proprietary technology, such as data science and machine learning algorithms, to optimize efficiency and enhance execution for its clients. Over time, the company has grown into one of the market leaders in the US, with more than 8% reported market share in LTL.

XPO, Inc. (NYSE:XPO) delivered strong results in the recent Q4 2024 with YoY earnings growth and LTL margin expansion that outperformed the industry. For the full year 2024, the company grew revenue by 4% to a record $8.1 billion, generated $1.3 billion of adjusted EBITDA, representing a 27% increase from the prior year, and delivered a 31% increase in adjusted diluted EPS. XPO successfully integrated 25 new service centers into their network, establishing a major competitive advantage in customer service capacity. The company improved operational efficiency significantly, reducing outsourced miles to historic lows and achieving a damage claims ratio of 0.2%, marking an improvement from 0.3% the previous year.

Looking ahead, XPO, Inc. (NYSE:XPO) expects to deliver significant margin expansion and earnings growth in 2025, with a baseline expectation of 150 basis points of margin improvement for the full year. The company currently maintains nearly 30% excess door capacity and a robust fleet in the trough of the cycle, positioning them strongly for accelerated operating leverage and profitable growth in the freight market up-cycle. With a lower Capex profile and sustained earnings growth expected, XPO anticipates generating higher levels of free cash flow, providing greater flexibility to return capital to shareholders over time. The strong guidance for the future and flawless execution from management make XPO one of the best freight stocks to invest in.

Overall, XPO ranks 6th on our list of best best freight stocks to buy according to hedge funds. While we acknowledge the potential of XPO, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than XPO but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.