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It is a well-documented fact that the widely-diversified transportation sector (one of the sixteen Zacks sectors) has had a rough year. The sector has been confronting a number of headwinds like declining air fares, Brexit-induced uncertainty, labor strife, technological glitches and weak travel demand due to security fears to name a few.
The above-mentioned headwinds resulted in the sector posting a disappointing performance in the third quarter of 2016. According to our Earnings Preview report, earnings for the sector contracted 13.6%.
Strong Overall Market Hints at Rebound
Bullish domestic data released over the last month have repeatedly indicated that the U.S. economy is picking up steam. For instance, unemployment levels were at a record low in November. According to data released on Friday, the unemployment rate in November fell to its lowest level since Aug 2007.
Moreover, Consumer confidence – a key determinant to the economy’s health – rebounded from its weak October showing to hit a nine-year high in November. Furthermore, according to the Commerce Department’s “second estimate,” the U.S. economy expanded at a rate of 3.2% during the third quarter, witnessing the highest growth rate since the third quarter of 2014.
Among other notable releases this month, construction spending improved and the ISM manufacturing and services indexes moved higher. In addition to the bullish releases, expectations of market-friendly policies from President-elect Donald Trump resulted in the coveted S&P 500 Index nearing an all-time high in November.
Moreover, the Dow ended the month on a triumphant note, rising during six of the last seven sessions. In fact, the index created eight records over November and breached the 19,000 mark for the first time ever on Nov 22.
Given this bullish sentiment and the increasing strength of the domestic economy, it is natural that the transportation sector is eyeing growth.
Holiday Season – A Catalyst
The ongoing holiday season is expected to aid the attempts of a turnaround for the transportation sector. Travel plans this season are likely to surge due to a number of bullish factors like solid job growth, rising wages and increased consumer spending, which have contributed to an improving economy. The uptick in travel demand should boost revenues and profitability for transports like airlines and railroads, leading to stock price appreciation.
Package delivery majors like FedEx Corp. (FDX - Free Report) and United Parcel Service, Inc. (UPS - Free Report) expect to make the most of this holiday season owing to growth in e-commerce. To meet the surge in demand, FedEx has hired more than 50,000 seasonal workers. The company has added 19 fully-automated stations and four major distribution hubs since the last peak season.
Moreover, FedEx has added 30 aircraft to its fleet since last year. Each of the four Mondays during the upcoming peak period is anticipated to be among the busiest in its history.
United Parcel has hired around 95,000 seasonal workers to meet the high demand. Shipping volume during the peak period this year is expected to increase around 14% on a year-over-year basis. The company expects to deliver more than 700 million packages across the globe, during the Thanksgiving and New Year’s Eve period. The presence of two extra operational days in the period is a positive. The company expects to deliver more than 30 million packages in 13 of the 21 holiday delivery days before Christmas.
Railroads Likely to Grow Under Trump Administration
Currently, railroads like Norfolk Southern Corp. (NSC - Free Report) and Union Pacific Corp. (UNP - Free Report) are suffering due to declining coal shipments. However, the election of Donald Trump as the President last month, is likely to usher in good news for the sector participants. This is because during his campaign Trump had issued statements in favor of reviving the beleaguered coal industry.
In his very words, “Coal will last for 1,000 years in this country.” Given that coal is a key revenue generating commodity for railroads, Trump’s pro-coal stance is certainly a positive for the companies in this space. Moreover, Trump’s promise to spend more on infrastructure raises optimism for railroads.
How to Identify the Outperformers?
Given the favorable backdrop, it is a prudent idea for investors to add stocks from the transportation sector to their portfolio for higher returns. However, the task of selecting the right stock is by no means an easy one, given the high degree of diversity in the transportation space. The process is akin to searching for ‘a needle in a haystack’ unless one is aware of an appropriate method to make the right choice.
This is where the Zacks Rank, which justifies a company’s strong fundamentals, can come in really handy. In addition to a favorable Zacks Rank the stocks have market capitalization of over $1 billion.
3 Transportation Stocks to Buy
Copa Holdings (CPA - Free Report) is a leading Latin American airliner that operates through its subsidiaries – Copa Airlines and AeroRepublica. The Panama City-based carrier sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The 2016 Zacks Consensus Estimate has increased 9 cents to $4.76 over the last month for Copa Holdings. The carrier has a market capitalization of $3.81 billion and a P/E (F1) of 19.05, which is lower than the industry average of 21.
The stock has returned 89.74% year to date, outperforming the Zacks Transportation sector that returned merely 12.6% over the same period.
FedEx Corporation is a Tennessee-based global transportation and logistics enterprise that offers customers a one-stop source for global shipping, logistics and supply chain solutions. The Zacks Rank # 2 (Buy) stock has seen solid earnings estimate revisions with the Zacks Consensus Estimate climbing 19 cents over the past 90 days to $12.13 per share for the current fiscal year. The expected earnings growth rate is 12.27%. The company has a market capitalization of $51.24 billion and a P/E (F1) of 15.9, which is lower than the industry average of 27.6.
The stock has returned 30.55% year to date, outperforming the Zacks Transportation sector, which has returned merely 12.6% over the same period.
SkyWest Inc. (SKYW - Free Report) , through its subsidiaries, operates a regional airline in the U.S. The company has a Zacks Rank #1 and a market capitalization of $1.89 billion. SkyWest’s expected growth rate for the current quarter and year are 4.1% and 36.2%, respectively. The Zacks Consensus Estimate for its current year earnings increased 1.9% over the last 60 days.
The stock has returned 88.49% year to date, outperforming the Zacks Transportation sector, which has returned merely 12.6% over the same period.
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3 Hot Transportation Stocks for a Surging Market
It is a well-documented fact that the widely-diversified transportation sector (one of the sixteen Zacks sectors) has had a rough year. The sector has been confronting a number of headwinds like declining air fares, Brexit-induced uncertainty, labor strife, technological glitches and weak travel demand due to security fears to name a few.
The above-mentioned headwinds resulted in the sector posting a disappointing performance in the third quarter of 2016. According to our Earnings Preview report, earnings for the sector contracted 13.6%.
Strong Overall Market Hints at Rebound
Bullish domestic data released over the last month have repeatedly indicated that the U.S. economy is picking up steam. For instance, unemployment levels were at a record low in November. According to data released on Friday, the unemployment rate in November fell to its lowest level since Aug 2007.
Moreover, Consumer confidence – a key determinant to the economy’s health – rebounded from its weak October showing to hit a nine-year high in November. Furthermore, according to the Commerce Department’s “second estimate,” the U.S. economy expanded at a rate of 3.2% during the third quarter, witnessing the highest growth rate since the third quarter of 2014.
Among other notable releases this month, construction spending improved and the ISM manufacturing and services indexes moved higher. In addition to the bullish releases, expectations of market-friendly policies from President-elect Donald Trump resulted in the coveted S&P 500 Index nearing an all-time high in November.
Moreover, the Dow ended the month on a triumphant note, rising during six of the last seven sessions. In fact, the index created eight records over November and breached the 19,000 mark for the first time ever on Nov 22.
Given this bullish sentiment and the increasing strength of the domestic economy, it is natural that the transportation sector is eyeing growth.
Holiday Season – A Catalyst
The ongoing holiday season is expected to aid the attempts of a turnaround for the transportation sector. Travel plans this season are likely to surge due to a number of bullish factors like solid job growth, rising wages and increased consumer spending, which have contributed to an improving economy. The uptick in travel demand should boost revenues and profitability for transports like airlines and railroads, leading to stock price appreciation.
Package delivery majors like FedEx Corp. (FDX - Free Report) and United Parcel Service, Inc. (UPS - Free Report) expect to make the most of this holiday season owing to growth in e-commerce. To meet the surge in demand, FedEx has hired more than 50,000 seasonal workers. The company has added 19 fully-automated stations and four major distribution hubs since the last peak season.
Moreover, FedEx has added 30 aircraft to its fleet since last year. Each of the four Mondays during the upcoming peak period is anticipated to be among the busiest in its history.
United Parcel has hired around 95,000 seasonal workers to meet the high demand. Shipping volume during the peak period this year is expected to increase around 14% on a year-over-year basis. The company expects to deliver more than 700 million packages across the globe, during the Thanksgiving and New Year’s Eve period. The presence of two extra operational days in the period is a positive. The company expects to deliver more than 30 million packages in 13 of the 21 holiday delivery days before Christmas.
Railroads Likely to Grow Under Trump Administration
Currently, railroads like Norfolk Southern Corp. (NSC - Free Report) and Union Pacific Corp. (UNP - Free Report) are suffering due to declining coal shipments. However, the election of Donald Trump as the President last month, is likely to usher in good news for the sector participants. This is because during his campaign Trump had issued statements in favor of reviving the beleaguered coal industry.
In his very words, “Coal will last for 1,000 years in this country.” Given that coal is a key revenue generating commodity for railroads, Trump’s pro-coal stance is certainly a positive for the companies in this space. Moreover, Trump’s promise to spend more on infrastructure raises optimism for railroads.
How to Identify the Outperformers?
Given the favorable backdrop, it is a prudent idea for investors to add stocks from the transportation sector to their portfolio for higher returns. However, the task of selecting the right stock is by no means an easy one, given the high degree of diversity in the transportation space. The process is akin to searching for ‘a needle in a haystack’ unless one is aware of an appropriate method to make the right choice.
This is where the Zacks Rank, which justifies a company’s strong fundamentals, can come in really handy. In addition to a favorable Zacks Rank the stocks have market capitalization of over $1 billion.
3 Transportation Stocks to Buy
Copa Holdings (CPA - Free Report) is a leading Latin American airliner that operates through its subsidiaries – Copa Airlines and AeroRepublica. The Panama City-based carrier sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The 2016 Zacks Consensus Estimate has increased 9 cents to $4.76 over the last month for Copa Holdings. The carrier has a market capitalization of $3.81 billion and a P/E (F1) of 19.05, which is lower than the industry average of 21.
The stock has returned 89.74% year to date, outperforming the Zacks Transportation sector that returned merely 12.6% over the same period.
FedEx Corporation is a Tennessee-based global transportation and logistics enterprise that offers customers a one-stop source for global shipping, logistics and supply chain solutions. The Zacks Rank # 2 (Buy) stock has seen solid earnings estimate revisions with the Zacks Consensus Estimate climbing 19 cents over the past 90 days to $12.13 per share for the current fiscal year. The expected earnings growth rate is 12.27%. The company has a market capitalization of $51.24 billion and a P/E (F1) of 15.9, which is lower than the industry average of 27.6.
The stock has returned 30.55% year to date, outperforming the Zacks Transportation sector, which has returned merely 12.6% over the same period.
SkyWest Inc. (SKYW - Free Report) , through its subsidiaries, operates a regional airline in the U.S. The company has a Zacks Rank #1 and a market capitalization of $1.89 billion. SkyWest’s expected growth rate for the current quarter and year are 4.1% and 36.2%, respectively. The Zacks Consensus Estimate for its current year earnings increased 1.9% over the last 60 days.
The stock has returned 88.49% year to date, outperforming the Zacks Transportation sector, which has returned merely 12.6% over the same period.
Confidential: Zacks' Best Investment Ideas
Would you like to see a hand-picked "all-star" selection of investment ideas from the man who heads up Zacks' trading and investing services? Steve Reitmeister knows when key trades are about to be triggered and which of our experts has the hottest hand. Click for his selected trades right now >>