It is no longer news that the transportation sector has been gaining this year with the gradual uptick in economic activities following the re-opening of the same.
One of the brightest corners of the sector is the trucking space. Evidently, the Zacks
Transportation - Truck industry has surged 50.9% so far this year, comfortably outperforming the S&P 500’s 22.7% uptick. Image Source: Zacks Investment Research
Bettering freight conditions as economic activities claw back to normalcy are mainly responsible for this double-digit price surge. Gradual economic growth, which led to an uptick in freight activities, has been a huge boon for the trucking stocks so far.
Given this buoyant scenario, investing in stocks like
ArcBest Corporation ( ARCB Quick Quote ARCB - Free Report) , Landstar System ( LSTR Quick Quote LSTR - Free Report) , Old Dominion Freight Line ( ODFL Quick Quote ODFL - Free Report) and J.B. Hunt Transport Services ( JBHT Quick Quote JBHT - Free Report) seems a prudent move.
Let’s delve deeper to unearth the factors impacting the trucking industry this year and the outlook for next year.
Stocks in the industry bumped up on overall economic growth as this hints at the increased movement of goods to more and more customers. Driven by economic growth in the United States, the trucking industry is benefiting from continued improvement in freight demand. Per the American Trucking Associations’ (ATA), the advanced seasonally-adjusted-for-hire truck tonnage index inched up 1.8% in October from the year-ago levels. This has been the most significant year-over-year uptick since May. Per ATA’s chief economist Bob Costello, “The combination of solid retail sales, inventory rebuilding, and generally higher factory output offset some areas of softer freight growth, like home construction, in October.”
However, persistent driver shortage continues to plague the industry this year, limiting trucking capacity in turn. Labor crisis is the key to inducing supply-chain disruptions prevalent in the industry since 2020. Per Bob Costello, the
current driver scarcity of 80,000 is an all-time high for the industry. As old drivers retire, trucking companies find it increasingly difficult to recruit the new ones despite significant pay raises.
In the wake of severe capacity constraints, rates are steeper. Evidently, the
DAT Truckload Volume Index hit an all-time high in October, gaining 2% month-over-month. The index measures the dry van, refrigerated and flatbed loads moved by truckload carriers. The sharp rise in the price of truckload services reflects the willingness of shippers to pay a premium to move goods through their supply chains.
While freight demand is likely to remain strong in 2022 as well, driven by an increased consumer spending, construction and manufacturing activities, supply-chain disruptions are unlikely to die down. In fact, measures to contain the spread of COVID-19, especially its new variant omicron, may hurt manufacturing and shipping operations. This, in turn, will worsen the global supply-chain crisis as labor crunch is unlikely to be resolved any time soon.
Such a situation is unlikely to relent before the second half of 2022.
Reportedly, factors like normalization of in consumer demand (which already peaked), healthy inventory levels and less shipping congestion with expanded capacity may cause the supply chain crisis to ease in the second half of 2022.
However, the write-up clearly suggests that the issue will likely persist in the near term. The current mismatch between demand and supply is anticipated to continue through the most of 2022. With supply-related constraints likely to persist in the near future and freight demand expected to increase, trucking rates should remain elevated, thus boosting the top line of the trucking companies.
Investors would do well to take advantage of this lack of equilibrium and add trucking stocks to their portfolios for healthy returns. We present below four trucking stocks, currently carrying a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see
the complete list of today’s Zacks #1 Rank stocks here . Moreover, each of these stocks has rallied more than 20% year to date and the momentum is here to stay in 2022 too. ArcBest Corporation is currently Zacks #1 Ranked. ARCB’s earnings trumped the Zacks Consensus Estimate in each of the trailing four quarters, the average being 27.4%. The Zacks Consensus Estimate for ARCB’s 2022 earnings has been revised 26.3% upward in the past 60 days.
Shares of ArcBest have skyrocketed more than 100% so far this year. Improving freight conditions in the United States bode well for ARCB. Solid customer demand and higher market rates are supporting ARCB.
Landstar System, currently flaunting a Zacks Rank of 1, is our next choice. LSTR is gaining from the gradual recovery in economy and freight market conditions in the United States. This, in turn, helped LSTR recover from the pandemic slumps in the second half of 2020.
Evidently, Landstar’s top and the bottom line increased substantially in each quarter from the respective third-quarter 2020 readings owing to robust revenues generated from the primary segment, which is truck transportation. Strong demand in the van truckload business is driving segmental revenues. Higher truck rates owing to tight truck capacity are also aiding the stock performance. Shares of LSTR have rallied 24.6% year to date. The Zacks Consensus Estimate for LSTR’s 2022 earnings has been revised 7.7% upward in the past 60 days.
Old Dominion Freight Line currently carries a Zacks Rank #2 (Buy). ODFL’s earnings trumped the Zacks Consensus Estimate in each of the trailing four quarters, the average being 5.2%.
Shares of Old Dominion have soared more than 70% so far this year. Improved freight market conditions are aiding ODFL. The less-than-truckload segment, the primary contributor to ODFL’s top line, is steadily performing well, thereby driving growth. Efforts to reward its shareholders also augur well. The Zacks Consensus Estimate for ODFL’s 2022 earnings has moved 4.9% north in the past 60 days.
J.B. Hunt Transport Services currently carries a Zacks Rank of 2. Ramped-up fleet productivity, a favorable customer freight mix, higher contractual and spot rates and an increased load count in the Truck segment are contributing to JBHT. Strength in its final mile network owing to a spurt in online shopping is also a major catalyst.
The Zacks Consensus Estimate for J.B. Hunt’s 2022 earnings has moved 5.4% north in the past 90 days. Shares of JBHT have surged more than 39% year to date. JBHT’s earnings trumped the Zacks Consensus Estimate in each of the trailing four quarters, the average being 9.9%.