The Zacks Transportation sector has been unfavorably affected by headwinds like increasing fuel costs and supply-chain woes. With oil prices moving north, fuel costs flared up significantly, hurting the bottom-line performance of transportation stocks. This is because fuel expenses represent one of the major input costs for transportation players.

Supply-chain woes have also resulted in elevated costs. Also, staff shortages led to multiple flight cancelations, affecting profitability.

Due to the above-mentioned headwinds, the sector has declined 16.5% year to date.

However, we would like to remind investors that despite the challenges, there are multiple reasons to continue investing in the transportation sector.

How Was 2023 for the Sector?

The transportation sector, being widely diversified in nature, includes airlines, railroads, package delivery companies, and truckers, to name a few. The record-breaking traffic during the Thanksgiving period has provided a much-needed boost to the airline stocks in the sector after a few tough months due to headwinds like high labor and fuel costs and a slowdown in domestic air travel demand.

Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the services industry. Below-par freight rates are also hurting the industry’s prospects. Highlighting the weak freight demand, the Cass Freight Index for shipments declined 1.3% month on month in November. This measure has deteriorated sequentially in six of the 10 months reported so far this year, thus confirming the overall declining trend.

Online shopping continues to gain despite the reopening of the normal market. This continued strength in e-commerce demand bodes well for packaging companies in the sector. Due to increased demand, 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 on the lookout for dividend stocks as these provide a steady source of income and a cushion against market uncertainty, as is the current scenario.

Driven by these tailwinds, stocks like Westinghouse Air Brake Technologies Corporation, operating as Wabtec Corporation (WAB Quick QuoteWAB - Free Report) , SkyWest, Inc. (SKYW Quick QuoteSKYW - Free Report) and Teekay Tankers Ltd. (TNK Quick QuoteTNK - Free Report) , have been impressive performers, gaining more than 15% year to date.

Image Source: Zacks Investment Research

3 Transportation Stocks Set to Fly High Next Year

Considering that these aforementioned favorable factors are likely to continue in 2024, we believe investing in the above-mentioned stocks is a prudent idea. Apart from the impressive year-to-date price performance, these stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have a market capitalization of more than $1 billion. These stocks have also witnessed upward estimate revisions in the past 90 days. Additionally, these stocks also have a strong trailing four-quarter average earnings surprise history.

Wabtec: This Pittsburgh, PA-based company offers technology-based locomotives, equipment, systems, and services for the freight rail and passenger transit industries worldwide. Wabtec’s top-line performance continues to gain from solid growth across its Freight segment revenues. Segmental growth was backed by strength across all product lines, with solid growth in Equipment, Digital Electronics and Services. Further, improved guidance for 2023 looks encouraging and raises optimism about this stock. For 2023, it now expects sales of $9.50-$9.70 billion (prior view: $9.25-$9.50 billion). Adjusted earnings per share are now estimated to be between $5.80 and $6.00 (prior view: $5.50 and $5.80). Management still anticipates strong cash flow generation, with operating cash flow conversion exceeding 90%.

WAB has an expected earnings growth rate of 10.64% for 2024. The Zacks Consensus Estimate for WAB’s 2024 earnings has improved 4.1% over the past 90 days. WAB delivered a trailing four-quarter earnings surprise of 7.11%, on average. WAB has a market capitalization of $21.88 billion and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

SkyWest: This St. George, UT-based company operates a regional airline in the United States. SkyWest's fleet-modernization efforts are commendable. In third-quarter 2023, SKYW inked a deal with United Airlines for 19 new E175 jets under contract. SKYW anticipates to take delivery of 23 new E175 aircraft starting the first quarter of 2024 through 2026. By 2026-end, SkyWest is likely to operate a total of 258 E175 aircraft. We are impressed by SKYW's efforts to reward its shareholders through buybacks. To this end, SKYW has repurchased 9.6 million shares in the first nine months of 2023. As of Sep 30, 2023, SkyWest had $136 million available under its current share repurchase program.

SKYW has an expected earnings growth rate of more than 100% for 2024. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 33.1% over the past 90 days. SKYW delivered a trailing four-quarter earnings surprise of 32.57%, on average. SKYW has a market capitalization of $2.02 billion and carries a Zacks Rank #2.

Teekay Tankers: Headquartered in Hamilton, Bermuda, Teekay Tankers offers marine transportation services to oil industries in Bermuda and internationally. TNK is gaining from the resumption of economic activities and the uptick in world trade.  This is because the shipping industry is responsible for transporting several goods involved in world trade.

Teekay presently carries a Zacks Rank #2 and has a market capitalization of $1.71 billion. The Zacks Consensus Estimate for TNK’s 2024 earnings has moved up 3% in the past 90 days. TNK has a trailing four-quarter earnings surprise of 14.12%, on average.