There is a situation developing in the U.S. that will drive revenue and profits for the transportation industry for many years to come. It started to develop with the pandemic, began to grow when the recession was less than expected, and was later compounded by an economic rebound that is much stronger than expected.
When the pandemic struck and lock-downs took effect manufacturers shuttered their plants and supply chains dried up. When Congress sent out the stimulus checks it sparked a round of consumer spending that has wiped products off of shelves. Now, with inventories across industries reportedly down high-single to low-double digits from the previous year, there is a need for 1) manufacturing to meet demand and rebuild inventory and 2) transportation/shipping that is growing by the day.
We have compiled a list of 7 transportation stocks that can't be ignored,
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- J.B. Hunt
- FedEx Corporation
- Advance Auto Parts
- Tesla
- Knight-Swift Transportation Holdings
- The Greenbrier Companies
- Matson, Inc
#1 - J.B. Hunt (NASDAQ:JBHT)
I want to start with J.B. Hunt because it is the largest intermodal shipping operator in North America. Intermodal, if you aren’t aware, means all those neat little shipping containers you see piled up on the decks of ships. It is the #1 method for shipping bulk items and the core of J.B. Hunt’s business.
I also wanted to start with J.B. Hunt because it is one of the largest trucking operations in North America specializing in both truck-load and less-than-truck-load deliveries. And because J.B. Hunt’s Dedicated Contracted Services can help any business with its logistical needs. If you want something shipped in North American, J.B. Hunt can take it from the loading dock to the end-user.
Although business is still below last year’s levels, rising volume within the industry is a double-tailwind for J.B. Hunt in the second half of the year. The total volume of J.B. Hunts truckload segment jumped 17% over the same time last year as dwindling capacity within the industry help drive business. Not only is the company seeing more business, but higher demand means higher prices for services and that means increased revenue and earnings.
What investors can appreciate is the dividend. J.B. Hunt doesn’t pay much in the way of yield but the distribution is as safe as it can be and on track for a 16th consecutive increase later this year. What traders will appreciate is that this stock is trending higher and just broke to new highs.
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
- $181.58
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $190.11 (4.7% Upside)
#2 - FedEx Corporation (NYSE:FDX)
FedEx Corporation, like its closest competitor United Parcel Service (UPS), is uniquely positioned within the shipping and freight industry. The company serves all manner of business with particularly heavy exposure to the consumer, eCommerce, and businesses like Amazon, Chewy.com, and Wayfair.com.
The added bonus for FedEx, the tailwind if you will, is the pandemic. The pandemic has caused a massive shift to eCommerce that has this company and UPS working round the clock to keep up. If Amazon can be used as a leading indicator for FedEx consider it has hired hundreds of thousands of new employees to help with the rise in demand.
FedEx sparked a parabolic move in its stock earlier this year when it announced aggressive price increases due to the spike in demand. Aggressive price increases, a high double-digit surge in YOY eCommerce sales, and an extended holiday shopping season add up to one thing for this company. Profits. Over the next two years, earnings growth is expected not once but twice from 2020's pandemic low to +10% in fiscal 2021 and +25% in fiscal 2022.
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
- $288.03
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 17 Buy Ratings, 8 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $316.04 (9.7% Upside)
#3 - Advance Auto Parts (NYSE:AAP)
Another trend within the transportation industry revolves around consumer transportation. Cars. It’s a well-known fact that prices for new cars have steadily risen over the last couple of years and that rise is driving a shift to used cars.. That’s where Advance Auto Parts comes into the picture.
Advance Auto Parts is a leading retailer of after-market, replacement parts, and maintenance supplies for the automotive industry. The company services both home-repairmen and professional installers across North America and has seen a high-single-digit boost to its revenue following the pandemic.
The 2nd quarter results were so strong, in fact, the analysts have since come out to up their targets for the year. Share prices have moved higher in the wake of those upgrades but the stock still offers a significant value at only 17X its estimated 2021 earnings. Wall Street analysts think the stock should trade closer to 21X the 2021 consensus or about 20% upside.
About Advance Auto Parts
Advance Auto Parts, Inc provides automotive replacement parts, accessories, batteries, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy duty trucks. The company offers battery accessories; belts and hoses; brakes and brake pads; chassis and climate control parts; clutches and drive shafts; engines and engine parts; exhaust systems and parts; hub assemblies; ignition components and wires; radiators and cooling parts; starters and alternators; and steering and alignment parts.
Read More - Current Price
- $38.63
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 14 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $48.64 (25.9% Upside)
#4 - Tesla (NASDAQ:TSLA)
How does Tesla, a carmaker, fit into this picture? Because Tesla is the cutting edge of technology representing the future of transportation; electric vehicles and autonomous driving. The company’s value lay not so much in the number of cars it can sell but in the technology it develops and how it can capitalize on that in future years.
Tesla has already unveiled its prototype electric semi. First revealed in 2017 the truck is slated for a production run in 2021 and the first models are expected to include Tesla’s self-driving feature Autopilot. Notably, the first 500 pre-orders were received within days of the unveiling and now there are thousands and the number is growing.
Two things the Tesla Semi have going for it are cost and fuel savings. The cost of the Semi is comparable to traditional rigs and come with significant fuel savings over the course of the year. You should expect to see these trucks on the road very soon but don't forget about the present. Tesla is firing on all cylinders as it is and expected to grow EPS more than 60% over the next 12 months alone.
About Tesla
Tesla, Inc designs, develops, manufactures, leases, and sells electric vehicles, and energy generation and storage systems in the United States, China, and internationally. The company operates in two segments, Automotive, and Energy Generation and Storage. The Automotive segment offers electric vehicles, as well as sells automotive regulatory credits; and non-warranty after-sales vehicle, used vehicles, body shop and parts, supercharging, retail merchandise, and vehicle insurance services.
Read More - Current Price
- $342.03
- Consensus Rating
- Hold
- Ratings Breakdown
- 14 Buy Ratings, 16 Hold Ratings, 9 Sell Ratings.
- Consensus Price Target
- $230.18 (32.7% Downside)
#5 - Knight-Swift Transportation Holdings (NYSE:KNX)
Knight-Swift Transportation Holdings is a smaller, more focused version of J.B. Hunt. Where J.B. Hunt is focused on intermodal and filling all gaps in the logistics chain, Knight-Swift is a pure-play on trucking that includes intermodal. The company, formerly two independent operations, recently joined forces to form the nation’s largest trucking fleet.
What investors get along with the exposure to trucking is value. When compared to its larger competitor Knight-Swift offers a significant discount at only 21X earnings while J.B. Hunt trades closer to 30X earnings. That’s surprising news investors can capitalize on.
Bank of America calls the combined Knight-Swift Transportation holdings its top pick among the trucking carrier which makes the valuation even more surprising. According to them, Knight-Swift’s trucking fleet is the best managed, most cost-efficient in North America.
Knight-Swift also pays a dividend comparable to J.B. Hunt with a yield near 0.75% and equally safe.
About Knight-Swift Transportation
Knight-Swift Transportation Holdings Inc, together with its subsidiaries, provides freight transportation services in the United States and Mexico. The company operates through four segments: Truckload, Less-than-truckload (LTL), Logistics, and Intermodal. The Truckload segment provides transportation services, which include irregular route and dedicated, refrigerated, expedited, flatbed, and cross-border operations.
Read More - Current Price
- $56.00
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 9 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $56.38 (0.7% Upside)
#6 - The Greenbrier Companies (NYSE:GBX)
The Greenbrier Companies is an interesting play on the railroad industries because it is not a rail carrier. The Greenbrier Companies, Inc. makes and manufactures rail cars and replacement wheels along with operating a vibrant rail-car rental business. While not a carrier itself, it is fundamental to the entire industry the way mid-stream pipelines are to the energy business. You can’t ship via rails without cars and wheels the same way you can’t deliver energy products without pipelines.
When the pandemic struck execs at The Greenbrier Companies, Inc. got nervous. With economic activity on the brink of implosion, they took drastic measures to cut back on costs, improve efficiencies, and preserve capital. Those efforts paved the way for 2nd quarter results that set the company up for accelerated profitability in the coming year.
With a reported backlog greater than 26,000 units business is all but assured for the next 6 quarters. Assuming the economic rebound is as strong as the data suggests the need for cars and replacement components will increase along with it. Until then, investors can sleep well at night knowing the 4.0% dividend is as safe as can be. The Greenbrier Companies, Inc. is a dividend-grower to boot with a 27.5% 5-year compound annual growth rate.
About Greenbrier Companies
The Greenbrier Companies, Inc designs, manufactures, and markets railroad freight car equipment in North America, Europe, and South America. It operates through three segments: Manufacturing; Maintenance Services; and Leasing & Management Services. The Manufacturing segment offers covered hopper cars, gondolas, open top hoppers, boxcars, center partition cars, tank cars, sustainable conversions, double-stack railcars, auto-max ii, multi-max, and multi-max plus products, intermodal cars, automobile transport, coil steel and metals, flat cars, sliding wall cars, pressurized tank cars, and non-pressurized tank cars.
Read More - Current Price
- $64.35
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 3 Buy Ratings, 0 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $60.00 (6.8% Downside)
#7 - Matson, Inc (NYSE:MATX)
Matson, Inc is a small-cap dividend play for the economic rebound. The company operates in two primary segments with one servicing ocean transport/freight to/from U.S. territories and possessions in the Pacific and the other brokering similar services to those in need.
Matson, Inc surprised investors over the summer when it followed through on plans to increase the dividend. With economic activity impacted by the pandemic, it was a safe assumption the company would take steps to mediate that impact, and it did.
Moves like reducing the frequency of calls in lower-demand ports, a hiring freeze, eliminating discretionary costs, and a reduction of vendor costs put the company on track for EPS to exceed 2019 levels when it next reports. The move to raise the dividend should be a sign for investors that business, while impacted by the pandemic, is still strong.
Notably, Maton's China-centric businesses saw a marked increase in traffic upon China's economic reopening. Container volume increased 68% over the same quarter in the previous year. A comparable increase is expected in the U.S.-centric data when the company next reports.
About Matson
Matson, Inc, together with its subsidiaries, engages in the provision of ocean transportation and logistics services. It operates through two segments, Ocean Transportation and Logistics. The Ocean Transportation segment offers ocean freight transportation services to the domestic non-contiguous economies of Hawaii, Japan, Alaska, and Guam, as well as to other island economies in Micronesia.
Read More - Current Price
- $151.65
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $135.50 (10.6% Downside)
Just look at the data. The Philadelphia Federal Reserve’s Manufacturing Business Outlook Survey is running at the hottest levels in years. Not the hottest levels since he pandemic started, but since before the trade war started.
That’s robust and other data backs it up. The Index of Leading Indicators rose 1.4% in August, that’s more than 1.0% in a single month, and signals an acceleration of activity is already underway.
The bottom line? America went back to work and is working harder than ever.
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