The supply chain disruptions due to the unprecedented supply and demand imbalance brought on by the Covid-19 pandemic. Transportation and logistics stocks have been in the news. This sector includes a variety of companies ranging from trucking and railroad companies to companies involved in last-mile delivery to airlines and rental cars that allow for travel and leisure.
This sector has been highly volatile. But if you've been invested in transportation stocks, you've done pretty well. The Dow Transportation Average (DTA) is up 70% since the onset of the pandemic in March 2020. However, in the last three months, the index is down 20%..
We expect that this section will continue to be volatile in 2022. However, as is the case with many sectors, some companies are better positioned than others. And that's the focus of this special presentation. We give you seven transportation stocks that are likely to outperform the sector in 2022.
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- Union Pacific Corporation
- CSX Corporation
- Norfolk Southern
- J.B. Hunt Transport Services
- United Parcel Service
- Federal Express
- Southwest Airlines
#1 - Union Pacific Corporation (NYSE:UNP)
Timing and context matter a lot when considering an investment in Union Pacific Corporation (NYSE:UNP). This s the second largest railroad network in the United States spanning nearly 32,000 miles of track. It’s an essential part of the national and global economy. And it’s become even more important as some companies are turning to rail delivery to offset higher fuel costs.
However, if you look at the analysts ratings, you’ll see the stock is trading near its consensus target. I’m not sure if the company’s 16 consecutive years of dividend growth is enough to get me excited. But that’s where timing and context come into play. The company last reported earnings in January. That was before the Russian invasion of Ukraine and before the Fed raised interest rates.
Union Pacific reports first quarter earnings in late April. We expect that the company will be receiving some new upgrades from analysts. And that should provide some upside support for UNP stock.
About Union Pacific
Union Pacific Corporation, through its subsidiary, Union Pacific Railroad Company, operates in the railroad business in the United States. The company offers transportation services for grain and grain products, fertilizers, food and refrigerated products, and coal and renewables to grain processors, animal feeders, ethanol producers, renewable biofuel producers, and other agricultural users; and construction products, industrial chemicals, plastics, forest products, specialized products, metals and ores, petroleum, liquid petroleum gases, soda ash, and sand, as well as finished automobiles, automotive parts, and merchandise in intermodal containers.
Read More - Current Price
- $226.32
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $259.80 (14.8% Upside)
#2 - CSX Corporation (NASDAQ:CSX)
The bullish case for CSX Corporation (NASDAQ:CSX) is nearly identical to that of Union Pacific. However, whereas Union Pacific largely operates on the West Coast, CSX operates nearly 20,000 miles of track on the East Coast.
A more salient distinction may be that Union Pacific received largely bullish analyst reviews after it reported earnings. The opposite was true of CSX. However, in March the Royal Bank of Canada issued a bullish upgrade on CSX and they downgraded UNP. That may be an interesting coincidence to bring up at a dinner party (or not), but here’s something more substantial. In the last 12 months, institutional buying has outpaced selling by nearly a 7:1 margin. Most of that buying occurred in the second quarter, but that simply means institutions are holding their shares.
CSX stock is finding strong resistance around its 52-week high. At a time when investor caution is elevated, many eyes will be on the company’s earnings report in April. If CXS can show investors that its precision scheduling model is continuing to lower costs, there could be upgrades in the stock’s future which would be bullish for investors.
About CSX
CSX Corporation, together with its subsidiaries, provides rail-based freight transportation services. The company offers rail services; and transportation of intermodal containers and trailers, as well as other transportation services, such as rail-to-truck transfers and bulk commodity operations. It also transports chemicals, agricultural and food products, minerals, automotive, forest products, fertilizers, and metals and equipment; and coal, coke, and iron ore to electricity-generating power plants, steel manufacturers, and industrial plants, as well as exports coal to deep-water port facilities.
Read More - Current Price
- $31.85
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $38.78 (21.8% Upside)
#3 - Norfolk Southern (NYSE:NSC)
Norfolk Southern (NYSE:NSC) is the last of the railroad stocks on our list. The railroad operates 21,000 miles of track mostly in the eastern United States.
Of the three railroad stocks we’ve discussed, NSC stock shows the highest upside compared to analyst expectations. As with many railroad stocks, efficiency is part of the bullish argument for what have traditionally been value-oriented stocks. In Norfolk’s case, the company is targeting a sub-60% operating ratio via the Thoroughbred Operating Plan it instituted in 2021.
The company is guiding to revenue growth in the high single digits with operating margin gains between 0.5% and 1%. Both revenue and earnings are projected to grow at a faster pace in the next five years. That may help the company grow into what right now appears to be a high valuation. Norfolk Southern pays an attractive dividend that currently pays out $4.96 per share on an annual basis.
About Norfolk Southern
Norfolk Southern Corporation, together with its subsidiaries, engages in the rail transportation of raw materials, intermediate products, and finished goods in the United States. The company transports agriculture, forest, and consumer products comprising soybeans, wheat, corn, fertilizers, livestock and poultry feed, food products, food oils, flour, sweeteners, ethanol, lumber and wood products, pulp board and paper products, wood fibers, wood pulp, beverages, and canned goods; chemicals consist of sulfur and related chemicals, petroleum products comprising crude oil, chlorine and bleaching compounds, plastics, rubber, industrial chemicals, chemical wastes, sand, and natural gas liquids; metals and construction materials, such as steel, aluminum products, machinery, scrap metals, cement, aggregates, minerals, clay, transportation equipment, and military-related products; and automotive, including finished motor vehicles and automotive parts, as well as coal.
Read More - Current Price
- $234.15
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $275.68 (17.7% Upside)
#4 - J.B. Hunt Transport Services (NASDAQ:JBHT)
Turning our attention to the trucking sector, we start with J.B. Hunt Transportation Services (NASDAQ:JBHT). As expected, the JBHT stock price has had a positive correlation with the price of oil. In mid-March when oil prices reached their peak, shares of JBHT were 28% higher than the previous year.
The company has been posting record revenue in each of the last two quarters. And if you take the lead from the analyst community, they may be likely to do it again. J.B. Hunt has been receiving bullish upgrades in March. Analysts tend to be cautious so when they start boosting a company’s price target a month prior to earnings, it’s always a bullish sign.
And that’s where this comes back to the supply chain. With summer approaching, fuel prices are only going to go higher but cargo has to reach its destination. Almost certain revenue growth along with a dividend that the company has been increasing for 20 years makes JBHT stock a solid choice.
About J.B. Hunt Transport Services
J.B. Hunt Transport Services, Inc provides surface transportation, delivery, and logistic services in the United States. It operates through five segments: Intermodal (JBI), Dedicated Contract Services (DCS), Integrated Capacity Solutions (ICS), Final Mile Services (FMS), and Truckload (JBT). The JBI segment offers intermodal freight solutions.
Read More - Current Price
- $170.23
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $190.11 (11.7% Upside)
#5 - United Parcel Service (NYSE:UPS)
United Parcel Service (NYSE:UPS) was one of the big winners during the pandemic. But as vaccines rolled out, investors began to question if the shift to e-commerce had legs. As it turned out, it did and that is one reason why UPS stock remains a compelling transportation stock to own.
UPS stock is up 129% in the last two years. It’s up 20% in the last 12 months. And analysts are giving the stock a 15% upside from its current price. Revenue and earnings are supposed to grow at a more historical pace which means the biggest gains are likely over. However, the company pays an attractive dividend that currently pays out $6.08 per share annually. Plus, the company has increased the dividend in each of the last 13 consecutive years.
Institutional investors are still showing interest in the stock with buying volume outnum:!bering selling volume by nearly a 2:1 margin.
About United Parcel Service
United Parcel Service, Inc, a package delivery company, provides transportation and delivery, distribution, contract logistics, ocean freight, airfreight, customs brokerage, and insurance services. It operates through two segments, U.S. Domestic Package and International Package. The U.S. Domestic Package segment offers time-definite delivery of express letters, documents, small packages, and palletized freight through air and ground services in the United States.
Read More - Current Price
- $125.68
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 7 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $151.29 (20.4% Upside)
#6 - Federal Express (NYSE:FDX)
In the last mile and overnight delivery space, Federal Express (NYSE:FDX) is the other half of the duopoly with United Parcel Service. FDX stock is up 102% in the last two years. However, the stock is down 21% in the past year. The reason appears to be earnings. Specifically, the company has come in below analysts’ estimates in two out of the last three quarters.
But analysts are projecting the company to have a significantly better year in 2022. In the short term, FDX stock may face some headwinds due to change in leadership. The company is getting a new CEO and while the move has been telegraphed and planned for some time, institutional investors frequently take a wait-and-see approach when someone new takes the helm.
To that end, investors will get their first look at the new CEO when the company hosts an analyst day in June. This will be the company’s first such even in 10 years.
About FedEx
FedEx Corporation provides transportation, e-commerce, and business services in the United States and internationally. It operates through FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services segments. The FedEx Express segment offers express transportation, small-package ground delivery, and freight transportation services; and time-critical transportation services.
Read More - Current Price
- $275.73
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 8 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $324.88 (17.8% Upside)
#7 - Southwest Airlines (NYSE:LUV)
The last of our transportation stocks is Southwest Airlines (NYSE:LUV). Cruise line stocks may be the only sector to be the victim of circumstances outside their control as airlines. Just when the economy seemed to be recovering, air travel got whacked by the Delta and Omicron variants of Covid-19.
However, the third time may be the charm. And one reason for that may be the return of corporate travel. Let’s face it. Even if business travel doesn’t return to pre-pandemic level, the industry will take what it can get. And Southwest is in a good position to capitalize on both leisure and business travel.
Depending on the metric you use, LUV stock will look undervalued or possibly overvalued. Investors would be better served focusing on earnings and revenue. If those continue to grow, the valuation will take care of itself.
About Southwest Airlines
Southwest Airlines Co operates as a passenger airline company that provides scheduled air transportation services in the United States and near-international markets. As of December 31, 2023, the company operated a total fleet of 817 Boeing 737 aircraft; and served 121 destinations in 42 states, the District of Columbia, and the Commonwealth of Puerto Rico, as well as ten near-international countries, including Mexico, Jamaica, the Bahamas, Aruba, the Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos.
Read More - Current Price
- $33.28
- Consensus Rating
- Reduce
- Ratings Breakdown
- 3 Buy Ratings, 11 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $31.37 (5.7% Downside)
Transportation stocks present an excellent opportunity for many types of investors. Many of these companies suffered sharp stock price declines during the pandemic. Many of those stocks are not yet back to pre-pandemic levels. Other investors may enjoy the relative security of defensive stocks that surged during the pandemic and still have some runway ahead. And others may enjoy stocks that offer a dividend in addition to some stock price growth.
However, there are a variety of reasons why you might not want to pick out individual stocks. In this case, you may want to invest in an ETF focused on the transportation index. The largest such ETF is the iShares US Transportation ETF (NYSEARCA:IYT). If you have bought into this ETF at the onset of the pandemic you would be sitting on a 111% gain. And the best performing transportation ETF in 2021 was the Direxion Daily Transportation Bull 3X Shares (NYSEARCA:TPOR) delivering a 105% gain.
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