The Zacks Transportation sector, being widely diversified in nature, includes airlines, railroads, package delivery companies and truckers, to name a few.
Most sector participants have mostly performed well this year owing to multiple tailwinds. Given the positives, investors interested in the sector are advised to bet on transportation stocks like Wabtec Corporation (WAB), United Airlines Holdings, Inc. (UAL), Southwest Airlines (LUV), SkyWest, Inc. (SKYW) and ZIM Integrated Shipping Services Ltd. (ZIM) which have not only performed well this year but are also expected to continue doing the same in 2025.
Tailwinds That Lifted the Sector in 2024
The airline stocks in the sector benefited from an improvement in air-travel demand following the end of the pandemic and normalization of economic activities. Record-breaking traffic during the Thanksgiving period and higher passenger volumes during the summer season outweigh concerns like escalating labor costs and weather-related issues.
Online shopping continues to gain despite economic activities returning to normalcy. This continued strength in e-commerce demand bodes well for packaging companies in the sector. The financial health of transportation companies has improved this year.
As a result, we have seen many companies in the space hiking dividends. Dividend stocks are safe bets for creating wealth, as the payouts generally act as a hedge against economic uncertainty. Investors are always looking for dividend stocks as these provide a steady source of income and a cushion against market uncertainty, as is the current scenario.
To combat the weak demand scenario due to woes like high inflation, companies are cutting costs, which are aiding their bottom line. A decline in oil prices is also positive for the bottom line of transportation companies, as fuel expenses represent a key input cost. Driven by these tailwinds, the abovementioned stocks have been impressive performers, outperforming the sector and gaining more than 15% year to date.
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5 Transportation Stocks Set to Fly High Next Year
We expect the above-mentioned tailwinds to continue next year. For example, the International Air Transport Association or IATA, recently gave a bullish projection for airlines in 2025, despite the existing economic uncertainties and supply-chain issues. The uptick in passenger volumes contributed to IATA forecasting passenger count to exceed 5 billion globally in 2025 for the first time.
Consequently, investing in the above-mentioned transportation stocks is a prudent move. These stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a market capitalization of more than $1 billion. They have also witnessed upward estimate revisions in the past 90 days and have a solid expected earnings growth rate for 2025.
Wabtec: This Pittsburgh, PA-based company offers technology-based locomotives, equipment, systems, and services for the freight rail and passenger transit industries worldwide. Strong segmental performance, driven by an improving economy and restructuring actions, has led to a healthy balance sheet that supports WAB’s shareholder-friendly stance.
WAB has an expected earnings growth rate of 13.60% for 2025. The Zacks Consensus Estimate for WAB’s 2025 earnings has improved 4.1% over the past 90 days. WAB has a market capitalization of $34.87 billion and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
United Airlines: This Chicago, IL-based company provides air transportation services in North America, Asia, Europe, Africa, the Pacific, the Middle East, and Latin America. Strong air travel demand, supported by new routes, represents a major tailwind for UAL. Environment-friendly approach also bodes well for the company.
UAL has an expected earnings growth rate of 14.15% for 2025. The Zacks Consensus Estimate for UAL’s 2025 earnings has improved 5.8% over the past 90 days. UAL has a market capitalization of $31.75 billion and carries a Zacks Rank #2.
Southwest Airlines: This Dallas, TX-based company operates as a passenger airline company that provides scheduled air transportation services in the United States and near-international markets.
Improvement in air travel demand bodes well for Southwest Airlines' top line. Given that travel demand remains healthy, LUV anticipates fourth-quarter 2024 unit revenues to increase 3.5%-5.5% on a year-over-year basis. As part of its growth strategy, LUV is focused on cost-cutting initiatives and fleet-modernization techniques. LUV’s solid balance sheet allows it to reward its shareholders through share buybacks and dividend payments.
LUV has an expected earnings growth rate of 110.13% for 2025. The Zacks Consensus Estimate for LUV’s 2025 earnings has improved 21.7% over the past 90 days. LUV has a market capitalization of $20.06 billion and sports a Zacks Rank #1.
SkyWest: This St. George, UT-based company operates a regional airline in the United States. SkyWest's fleet-modernization efforts are commendable. SKYW has fleet-related agreements with other heavyweight airlines like United Airlines and Alaska Airlines. By 2026-end, SKYW is scheduled to operate 278 E175 aircraft. SKYW's shareholder-friendly approach through share buybacks is commendable.
SKYW has an expected earnings growth rate of 16.6% for 2025. The Zacks Consensus Estimate for SKYW’s 2025 earnings has improved 7.1% over the past 90 days. SKYW has a market capitalization of $4.31 billion and flaunts a Zacks Rank #1.
ZIM Integrated Shipping Services: This Haifa, Israel-based company provides container shipping and related services in Israel and internationally.
The Zacks Consensus Estimate for ZIM’s 2025 earnings has improved more than 100% over the past 90 days. ZIM has a market capitalization of $2.45 billion and sports a Zacks Rank #1.
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