Hot Stocks to Watch for 2019: Will Transportation Sector Stocks be the Top Stocks to Buy?
Transportation Sector Stocks
Transportation sector stocks are issued by companies that provide services moving people, goods, or the infrastructure to do so. The transportation sector can broadly be grouped under the airline, rail, shipping, truck and services industries. Its growth is tied to broad economic factors like GDP growth, industrial production, construction volumes and trade, as well as consumer demand. Freight transport is the physical process of transporting commodities and merchandise goods and cargo. Logistics is a term borrowed from the military to describe the complex coordination required for commercial transport of goods to customers.
Transportation Industry Challenges
Cutting transportation costs is at the top of the list of challenges for the transportation and logistics industry. Along with cost cutting, there is a relentless drive within the sector for greater innovations and technology advances:
- Fuel Costs – Fuel represents the single highest component in trying to cut transport and transportation costs. Higher fuel prices are expected to increase transportation costs for US shippers this year. Rising US diesel fuel prices are escalating surcharges added to freight rates. This is reversing a two-year trend that cut into the revenue and earnings of truckers as fuel prices plummeted.
- Business Process Improvement – There is a need to find and absorb new technology. However, adopting new methods and systems can be very disruptive during the implementation process. While the industry understands and supports many of the benefits of these technologies, some questions remain as to how they will pay for, how they will implement, and how they will get employees to embrace the new technology.
- Improved Delivery Service – Customers want full transparency regarding their delivery status at all times. However, as customer expectations have increased, their willingness to pay more for fast shipping has decreased. The majority of consumers are unwilling to pay extra for less than two-day shipping.
- Government Regulations. Carriers face significant compliance regulations imposed by federal, state and local authorities.
- Environmental Issues. Emission reduction regulations brought about by state and local governments has created concern that the compliance costs could exceed benefits.
- Technology Strategy & Implementation. While the industry understands and supports many of the benefits of these technologies, some questions remain as to how they will pay for, implement, and embrace the changes.
Transportation Sector Stocks Performance in 2019
The performance of companies in the transportation sector will be greatly influenced by economic factors that affect the cost of transportation services as well as their ability to identify and implement new systems and technology.
Transportation will continue to undergo transformation and evolution in 2019. The trend is to boost the use of digital platforms to do more for shippers, carriers, logistics companies and other stakeholders. Telematics technology in particular is playing an important role in enabling operators to make their fleets more efficient and sustainable. Telematics is a convergence of telecommunications and information processing. By combining a GPS system with on-board diagnostics it’s possible to record – and map – exactly where a vehicle (or delivery) is and how fast it’s traveling.
Transportation Sector Stocks – Top Stocks to Watch
Top Transportation Stock – FedEx Corporation (FDX)
FedEx Corporation (NYSE:FDX) is a multinational courier/delivery services company based in Memphis, Tennessee. Currently, FDX segments their business results into 4 major categories which include FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services. FedEx Express and FedEx Ground currently make up over 80% of the company’s revenue. In the past 14 years, impressive growth has led FDX to become a very popular stock. Recently, however, a readjustment to its earnings forecast has brought the stock price down significantly to as low as $150 in the past few months. For many, this may seem like a good entry point for this stock. The current price more accurately reflects its intrinsic value.
It would be very difficult for a new entrant into the logistics space to effectively compete with FedEx. Their business is incredibly asset intensive. FDX has total assets in the range of $57 billion. This includes a fleet of 670 aircraft, 180,000+ trucks, and approximately 5,000 operating facilities around the world (Source: FDX Presentation). You cannot duplicate a network this large and complex even if you had the money. FDX has an efficient and transparent operating network. The company can deliver to almost anywhere in the world.
Shares are now trading at a much more reasonable level. FDX has a competitive advantage that will endure for the foreseeable future. Growth should be slightly better than global GDP growth.
Hot Stocks to Watch – CH Robinson Worldwide (CHRW)
CH Robinson is a non-asset-based third-party logistics provider. The company provides freight brokerage services, transportation and logistics, outsource solutions, information services, and produce sourcing. The company’s network provides access to 73,000 transportation providers worldwide. It is the largest North American freight broker by estimated net revenues, but it also operates a growing air and ocean forwarding unit and a legacy produce-sourcing operation. CHRW has over 15,000 employees worldwide serving over 120,000 customers. The bulk of its business (52%) comes from truck transportation logistics.
CHRW dominates its market by its size and efficiency. The company is a leader that is present in multiple countries and serves various industries and clients. The company finds itself thriving in a growing field while it is safely diversified in its core business activities. CH Robinson Worldwide is a logistic provider that has developed expertise in transporting goods regardless of whether it requires trucks, airplanes or ships.
Freight Transportation Services – J.B. Hunt Transport Services, Inc.(JBHT)
J.B. Hunt has a solid history of earnings growth with more growth forecast for 2019. The company is trading close to fair value based upon its earning potential for the year. Investors have an opportunity to pick up shares in a growing company at a reasonable price.
J.B. Hunt is currently one of the largest listed trucking companies in the US, valued at over $12 billion. The company is operating in 4 segments. The biggest segment is Intermodal, involving two or more different modes of transportation. JBHT also has the largest Drayage fleet in North America. Drayage is a key aspect in the transfer of shipments to and from other means of transportation. The next largest segment is focused on dedicated contract services which are mainly dealing with fleet creation, conversion, and augmentation. This is a technology-focused segment based on optimization. Technology is also increasingly used in its smallest segment called ‘truckload’ which has one of the largest networks in the US.
The current market correction offers an interesting buying opportunity. Economic sentiment continues to be high and transportation sector stocks display solid growth signals.
Trucking Companies Stocks – Ryder System, Inc. (R)
Ryder System, Inc. is a leader in truck fleet management solutions, as well as supply chain and logistics management. Founded in 1933 and now headquartered in Miami, Ryder has over 36,000 employees. The company divides its operations into three segments: Fleet Management Solutions, Supply Chain Solutions, and Dedicated Transportation Solutions.
Compared with other trucking outfits, Ryder pays a hefty and well-covered dividend of 4.16%. Since 2004, the dividend has steadily climbed from $.60/share annually to $2.16/share annually in 2018. Ryder’s yield of 4.16% is nearly double its five-year average yield of 2.10%. Ryder clearly accepts that changes in technology will have a significant impact on its business model and it is looking to capitalize on those changes. Management is preventing shareholder dilution under a two-year, 1.5-million-share repurchase program.
If you drive any highway in the USA, you will pass countless semi trucks on the road. Trucking as a method of transportation is often overlooked as a potential investment. However, it remains the most versatile way to transport freight in the United States.
Ryder has seen impressive revenue growth over the past two years, backed by a winning long-term growth strategy.
Transportation Stocks Buy – Southwest Airlines’ (LUV)
Southwest Airlines (LUV) continued to grow traffic and capacity with revenue passenger miles and available seat miles increasing 3.3% and 5.4% in Q4 2018. Traffic growth allows Southwest to improve its load factor and strategically invest in expanding capacity to take advantage of the healthy economic conditions. Higher revenue growth should more than offset rising costs going forward. Southwest is an attractive, long-term growth stock given its low valuation, its ability to return value to shareholders, and the key investments it’s making to execute its differentiation.
Southwest Airlines’ (LUV) stock is an attractive investment opportunity given the airline’s history of profitability. The company is focused on a differentiation strategy from its close rivals American Airlines (AAL) and Delta Air Lines (DAL). Recent market studies on customer satisfaction show this strategy is clearly paying off. These efforts should continue to build the Southwest brand and result in future earnings growth as the airline takes advantage of the favorable U.S. economy.
Transportation Sector Stocks – United Continental (UAL)
United Continental Holdings, Inc. (UAL), is a holding company and its principal subsidiary is United Air Lines, Inc. The Company transports people and cargo through its mainline operations. It has global air rights in North America, Asia-Pacific, Europe, Middle East, Africa and Latin America. The Company, through United and its regional carriers, operates flights from its hubs throughout the USA.
The Company has contractual relationships with a range of regional carriers to provide regional jet and turboprop service branded as United Express. These regional operations are an extension of the Company’s mainline network. This regional service complements its operations by carrying traffic that connects to its mainline service and allows flights to smaller cities that cannot be provided with mainline aircraft.
United is a member of Star Alliance, a global integrated airline network and an airline alliance network. United also participates in joint ventures, with Air Canada and the Lufthansa Group covering transatlantic routes, and another with All Nippon Airways (ANA) covering certain transpacific routes.
United Continental Holdings Value Proposition
UAL has exceeded the analysts’ estimates in 11 out of the last 12 quarters. UAL is poised to grow its earnings per share at a fast pace for at least another two years. Its share repurchases greatly enhance shareholder value thanks to the cheap valuation of the stock.
The stock is still likely to offer high returns in the upcoming years. Here’s why: United introduced 93 new routes last year, more than any other U.S. airline. Moreover, its management expects to grow the earnings per share to $10.0-12.0 this year. Even better, management has confirmed that it is on track to achieve earnings per share of $11.0-13.0 next year. As the airline has exceeded the analysts’ estimates in almost every quarter in the last three years, its earnings are likely to exceed or end up in the high end of the above guidance.
Best Logistics Companies – United Parcel Service, Inc. (UPS)
United Parcel Services Inc. is the worlds largest package delivery company. The company has operations in over 220 countries and delivers an average of 20 million packages a day. UPS delivers billion of packages to almost 10 million receivers. The company’s overall corporate strategy is to provide value through offering differentiated logistics services to their customers. To support this, UPS is divided into three different segments-U.S. Domestic Package, International Package, and Supply Chain & Freight- with US Domestic Package contributing ~62% of revenue generation.
E-commerce and e-retail remain a driving force throughout the world for transportation sector stocks. There is no surprise that these trends have been a strong tailwind for UPS and are projected to continue for the long term future. As you might expect, UPS has shown solid growth, returns, and operational efficiency over time. Long term e-commerce growth provides attractive tailwinds. United Parcel Service (UPS) is one of those great, yet easy to understand business models. The recent market downturn may be a good time to enter a position.
The Bottom Line
Technological advancements continue to bring down the cost of logistics and fleet management. It’s a phenomenon that is driving big investments in transportation sector stocks. Owning transportation sector stocks means staying abreast of news in the field. Still, transporting people, goods and services moves the global economy. As technology continues to boost productivity, Transportation Sector Stocks are poised for a boost in 2019.
Top Technology Stocks
Are you interested in Technology Stocks? Check out Top Tech Stocks to Watch for 2019
The technology sector features stocks related to developing and distributing technologically based goods and services. This sector contains businesses that manufacture electronics, create software, and provide computers or products and services relating to information technology.