In this article we take a look at the 10 best transportation stocks to buy now. You can skip our discussion on why do analysts believe transportation sector is poised for growth and go directly to 5 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.
Best Transportation Stocks To Buy Now
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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.”
8. Expeditors International of Wshngtn Inc (NASDAQ: EXPD)
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.
