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3 Transportation Stocks Move Up Over 10% YTD With More Upside

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The widely-diversified Zacks Transportation sector, housing airlines, railroads, trucking and shipping companies, among others, continues to be aided by the pickup in economic activities and the rebound in demand for air travel after enduring pandemic lows.

However, the sector is suffering from raging inflation, higher interest rates, increased fuel price, supply-chain disruptions and slowdown in freight demand. The sector has inched up only 2.3% year to date compared with a 10.7% surge of the S&P 500.

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Some Dwelling Positives

Airlines, which is an integral part of the sector, is aided by rise in air-travel demand.  People are again resorting to air travel with the resumption of normal activities. The removal of COVID-related restrictions is aiding air travel, which is  strong on the international front as well. Passenger revenues, which accounted for the bulk of the top line, is also increasing due to rise in travel demand. Upbeat air-travel demand has aided almost all the airline stocks during the first-quarter 2023 period.

The focus of airlines on boosting cargo revenues bodes well for top-line growth, especially in the current scenario where passenger revenues are rebounding strongly from the pandemic lows.

Airline stocks are likely to continue flying high with the summer travel season fast approaching when air-travel demand is likely to swell. Per Airlines for America, U.S. airlines are anticipated to carry 257 million passengers from Jun 1 to Aug 31, 2023. The projection is at an all-time high.

Shipping stocks in the sector also look attractive. With the reopening of the Chinese economy, the entire shipping industry has heaved a sigh of relief. In fact, ocean shipping is hugely dependent on China. The country is a key manufacturing hub and reports significant high demand for goods and services, courtesy of its large population. With the shipping industry responsible for transporting the bulk of the goods involved in global trade, the improvement in travel to and from China bodes well as it increases the demand for the vessels transporting various commodities like oil.

The upbeat demand for liquefied natural gas (LNG) represents a huge positive. The elevated levels of inflation raised oil and natural gas prices. Amid the prolonged Russia-Ukraine war, Europe is likely to seek gas supplies outside Russia. This is expected to drive demand for LNG vessels.

The cost cutting measures undertaken by the sector participants to combat the weak  demand scenario, are also driving bottom-line growth for the sector.

3 Transportation Stocks to Buy Now

Riding on the above positives, we have highlighted three stocks — Allegiant Travel Company (ALGT - Free Report) , Copa Holdings (CPA - Free Report) and Danaos Corporation (DAC - Free Report) — from the Transportation sector. The companies carry a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

These firms have witnessed impressive earnings estimate revisions for the current year. Also, all the above-mentioned stocks have outperformed the sector with respect to price in the year-to-date period.

Allegiant Travel: The company, currently carrying a Zacks Rank of 2, is seeing a steady recovery in air-travel demand. ALGT has an expected earnings growth rate of more than 100% for the current year.

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The Zacks Consensus Estimate for ALGT’s current-year earnings has improved 47% in the past 60 days. ALGT delivered a trailing four-quarter earnings surprise of 79.8%, on average.

Copa Holdings: The company is benefiting from the improvement in air-travel demand.  Upbeat air-travel demand aided Copa Holdings' performance in first-quarter 2023, wherein CPA reported better-than-expected earnings per share and revenues. Operating revenues in the March quarter increased 29% to $867.3 million.

The above-mentioned tailwinds are likely to continue aiding this Latin American carrier that currently sports a Zacks Rank #1. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 21.3% upward in the past 60 days. CPA delivered a trailing four-quarter earnings surprise of 14.6%, on average.

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Danaos: The company, currently sporting a Zacks Rank of 1, is being well served by its cost-cutting efforts. The cost-saving endeavors are driving the bottom line.   

The Zacks Consensus Estimate for DAC’s current-year earnings has improved 15.2% in the past 60 days. DAC delivered a trailing four-quarter earnings surprise of 13.2%, on average.

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Copa Holdings, S.A. (CPA) - free report >>

Allegiant Travel Company (ALGT) - free report >>

Danaos Corporation (DAC) - free report >>

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