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It is a well-established fact that the widely-diversified transportation sector, which includes airline companies, railroads, truckers, shippers to name a few, has struggled for the greater part of 2016. Sector participants have been plagued by a number of headwinds like labor strife, technological glitches, soft coal demand and declining travel demand due to security fears stemming from increased terror attacks in the first half of the year.
The lackluster performance of the sector in the first half of the year can be seen from the graph below. The chart clearly indicates that the sector has lost 4.75%, whereas the S&P 500 Index gained 9.26% in the same period.
Alls Well That Ends Well
However, matters have been changing for the better over the past few months on the back of bullish domestic data. This clearly indicates that the U.S. economy is picking up steam. With the overall economy back on the growth path, things are looking up for the transportation sector as well. With only a few days remaining before we bid adieu to 2016, this key sector (one of the 16 Zacks sectors) is likely end the year on a triumphant note.
We are optimistic about the fact that the sector has outperformed the S&P 500 Index in the current quarter. The sector has gained 10.63% compared with the S&P 500 Index that advanced just 1.81% over the same period.
Railroads Poised for Growth Under Trump?
Declining coal shipments have been hurting railroad stocks for quite some time. Performances of some leading railroads like Norfolk Southern Corp. (NSC - Free Report) and Union Pacific Corp. (UNP - Free Report) bear testimony to this unfavorable trend. With revenues from this commodity making up a significant portion of the top line of railroads, it is of little wonder that stocks in the space have struggled due to dwindling coal shipments.
However, the surprise victory of Donald Trump in the U.S. presidential elections in November has cast a ray of hope for this struggling sector. Trump, during his election campaign, had taken a pro-coal stance and emphasized the need to revive the coal industry. The President-elect is in favor of increasing jobs in the coal sector and possibly relaxing regulations. Additionally, if industrial production starts growing, coal volumes could increase further.
Moreover, Moody's Investor Service, the rating services arm of Moody's Corporation raised its outlook for the North American Coal Industry from negative to stable in November.
Holiday Season – Another Driving Force
The ongoing holiday season is expected to be another factor aiding the turnaround efforts of 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. The same factors have also contributed to an improving economy.
The advent of the holiday season implies that package delivery companies like FedEx Corporation (FDX - Free Report) and United Parcel Service, Inc. (UPS - Free Report) have their hands full. These companies are leaving no stone unturned to meet the surge in demand fueled by the rapid e-commerce growth.
A successful holiday season for the abovementioned companies are likely to boost their stock prices. This, in turn, bodes well for the entire transportation sector. Moreover, the bullish forecast unveiled by the Airlines for America for the ongoing winter holiday period (Dec 16–Jan 5) is good news for the U.S. airline space. The bullish forecast was driven by an improving economy and declining air fares. The forecast comes close on the heels of the Thanksgiving travel rush, further indicating the strong demand for air travel.
Improving Unit Revenues – A Major Positive for Airlines
In the past few quarters, key revenue metric – PRASM (passenger revenue per available seat mile: a measure of sales relative to capacity for a carrier) – impacted revenues for most of the carriers. Lower fuel surcharges on international flights due to reduced oil prices were one of the main reasons behind the persistent decline in the metric.
However, bullish forecasts by carriers in recent times indicate that woes related to the metric seem to be easing. For instance, American Airlines Group (AAL - Free Report) now expects total revenue per available seat mile (TRASM) for the current quarter in the band of decline of 1% to an increase of 1%. The view represents a marked improvement from the guidance issued last month, when the metric was expected to decline in the band of 0.5%–2.5%.
Hawaiian Holdings (HA - Free Report) expects fourth-quarter RASM to grow in the range of 3% to 6%. Earlier, the company had anticipated an increase of 0.5% to 3.5%. Hawaiian Holdings sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Decline in air fares this year has been considered by many as one of the reasons behind unit revenue woes. However, the rise in oil prices increases the scope to raise ticket prices, thereby boosting revenues. Investors interested in the airline space would keenly wait to see if airfares rise in the coming year.
The improvement in the condition of the sector is highlighted by the upgrade in the Zacks Industry Ranks of most components in the transportation space. For instance, the Transportation-Airline division currently carries a bullish Zacks Industry Rank of 39 (among more than 260 groups). This is much more favorable than the 200+ rank carried couple of months ago.
With things looking up for the transportation sector, we believe that investors should add stocks from this sector to their portfolios to ensure solid returns.
4 Prominent Picks
Given the vastness of the sector it is by no means an easy task to arrive at likely outperformers for the coming year. 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 a sound VGM Score. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores.
Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or #2 (Buy) offer the best upside potential.
Hawaiian Holdings, the parent of Hawaiian Airlines, is headquartered in Honolulu, HI. It engages in the scheduled air transportation of passengers and cargo. Sporting a VGM score of “A,” this Zacks Rank #1 company’s expected earnings growth is an impressive 68.7% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 11.41, lower than the industry average of 19.01.
The stock has returned 68.41% year to date, outperforming the Zacks Transportation sector, which has returned merely 13.97% 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 #2 and a VGM score of “A.” 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 over 100% year to date, outperforming the Zacks Transportation sector, which has returned merely 13.97% over the same period.
Forget the gym, finding great stocks should be your New Year's resolution! Don't miss out on our new Top 10 Stocks for 2017 list, which has been hand-picked from 4,400 stocks covered by the Zacks Rank. Be one of the first to see this year's list here>>
USD Partners LP (USDP - Free Report) acquires, develops and operates energy-related rail terminals and other and complementary midstream infrastructure assets and businesses. The company has a Zacks Rank #1 and a VGM score of “A.” USD Partners’ expected growth rate for the current quarter and year are 33.3% and 53.7%, respectively.
The Zacks Consensus Estimate for its current year earnings increased 46.5% over the last 60 days. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 12.5, lower than the industry average of 18.1.
The stock has returned over 100% year to date, outperforming the Zacks Transportation sector, which has returned merely 13.97% over the same period.
ArcBest Corporation (ARCB - Free Report) provides freight transportation services and solutions. The company has a Zacks Rank #2 and a VGM score of “A.” The Zacks Consensus Estimate for its current year earnings increased 3.4% over the last 60 days.
The stock has returned 33.47% year to date, outperforming the Zacks Transportation sector, which has returned merely 13.97% over the same period.
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4 Transportation Stocks to Outperform in 2017
It is a well-established fact that the widely-diversified transportation sector, which includes airline companies, railroads, truckers, shippers to name a few, has struggled for the greater part of 2016. Sector participants have been plagued by a number of headwinds like labor strife, technological glitches, soft coal demand and declining travel demand due to security fears stemming from increased terror attacks in the first half of the year.
The lackluster performance of the sector in the first half of the year can be seen from the graph below. The chart clearly indicates that the sector has lost 4.75%, whereas the S&P 500 Index gained 9.26% in the same period.
Alls Well That Ends Well
However, matters have been changing for the better over the past few months on the back of bullish domestic data. This clearly indicates that the U.S. economy is picking up steam. With the overall economy back on the growth path, things are looking up for the transportation sector as well. With only a few days remaining before we bid adieu to 2016, this key sector (one of the 16 Zacks sectors) is likely end the year on a triumphant note.
We are optimistic about the fact that the sector has outperformed the S&P 500 Index in the current quarter. The sector has gained 10.63% compared with the S&P 500 Index that advanced just 1.81% over the same period.
Railroads Poised for Growth Under Trump?
Declining coal shipments have been hurting railroad stocks for quite some time. Performances of some leading railroads like Norfolk Southern Corp. (NSC - Free Report) and Union Pacific Corp. (UNP - Free Report) bear testimony to this unfavorable trend. With revenues from this commodity making up a significant portion of the top line of railroads, it is of little wonder that stocks in the space have struggled due to dwindling coal shipments.
However, the surprise victory of Donald Trump in the U.S. presidential elections in November has cast a ray of hope for this struggling sector. Trump, during his election campaign, had taken a pro-coal stance and emphasized the need to revive the coal industry. The President-elect is in favor of increasing jobs in the coal sector and possibly relaxing regulations. Additionally, if industrial production starts growing, coal volumes could increase further.
Moreover, Moody's Investor Service, the rating services arm of Moody's Corporation raised its outlook for the North American Coal Industry from negative to stable in November.
Holiday Season – Another Driving Force
The ongoing holiday season is expected to be another factor aiding the turnaround efforts of 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. The same factors have also contributed to an improving economy.
The advent of the holiday season implies that package delivery companies like FedEx Corporation (FDX - Free Report) and United Parcel Service, Inc. (UPS - Free Report) have their hands full. These companies are leaving no stone unturned to meet the surge in demand fueled by the rapid e-commerce growth.
A successful holiday season for the abovementioned companies are likely to boost their stock prices. This, in turn, bodes well for the entire transportation sector. Moreover, the bullish forecast unveiled by the Airlines for America for the ongoing winter holiday period (Dec 16–Jan 5) is good news for the U.S. airline space. The bullish forecast was driven by an improving economy and declining air fares. The forecast comes close on the heels of the Thanksgiving travel rush, further indicating the strong demand for air travel.
Improving Unit Revenues – A Major Positive for Airlines
In the past few quarters, key revenue metric – PRASM (passenger revenue per available seat mile: a measure of sales relative to capacity for a carrier) – impacted revenues for most of the carriers. Lower fuel surcharges on international flights due to reduced oil prices were one of the main reasons behind the persistent decline in the metric.
However, bullish forecasts by carriers in recent times indicate that woes related to the metric seem to be easing. For instance, American Airlines Group (AAL - Free Report) now expects total revenue per available seat mile (TRASM) for the current quarter in the band of decline of 1% to an increase of 1%. The view represents a marked improvement from the guidance issued last month, when the metric was expected to decline in the band of 0.5%–2.5%.
Hawaiian Holdings (HA - Free Report) expects fourth-quarter RASM to grow in the range of 3% to 6%. Earlier, the company had anticipated an increase of 0.5% to 3.5%. Hawaiian Holdings sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Decline in air fares this year has been considered by many as one of the reasons behind unit revenue woes. However, the rise in oil prices increases the scope to raise ticket prices, thereby boosting revenues. Investors interested in the airline space would keenly wait to see if airfares rise in the coming year.
The improvement in the condition of the sector is highlighted by the upgrade in the Zacks Industry Ranks of most components in the transportation space. For instance, the Transportation-Airline division currently carries a bullish Zacks Industry Rank of 39 (among more than 260 groups). This is much more favorable than the 200+ rank carried couple of months ago.
With things looking up for the transportation sector, we believe that investors should add stocks from this sector to their portfolios to ensure solid returns.
4 Prominent Picks
Given the vastness of the sector it is by no means an easy task to arrive at likely outperformers for the coming year. 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 a sound VGM Score. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores.
Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or #2 (Buy) offer the best upside potential.
Hawaiian Holdings, the parent of Hawaiian Airlines, is headquartered in Honolulu, HI. It engages in the scheduled air transportation of passengers and cargo. Sporting a VGM score of “A,” this Zacks Rank #1 company’s expected earnings growth is an impressive 68.7% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 11.41, lower than the industry average of 19.01.
The stock has returned 68.41% year to date, outperforming the Zacks Transportation sector, which has returned merely 13.97% 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 #2 and a VGM score of “A.” 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 over 100% year to date, outperforming the Zacks Transportation sector, which has returned merely 13.97% over the same period.
Forget the gym, finding great stocks should be your New Year's resolution! Don't miss out on our new Top 10 Stocks for 2017 list, which has been hand-picked from 4,400 stocks covered by the Zacks Rank. Be one of the first to see this year's list here>>
USD Partners LP (USDP - Free Report) acquires, develops and operates energy-related rail terminals and other and complementary midstream infrastructure assets and businesses. The company has a Zacks Rank #1 and a VGM score of “A.” USD Partners’ expected growth rate for the current quarter and year are 33.3% and 53.7%, respectively.
The Zacks Consensus Estimate for its current year earnings increased 46.5% over the last 60 days. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 12.5, lower than the industry average of 18.1.
The stock has returned over 100% year to date, outperforming the Zacks Transportation sector, which has returned merely 13.97% over the same period.
ArcBest Corporation (ARCB - Free Report) provides freight transportation services and solutions. The company has a Zacks Rank #2 and a VGM score of “A.” The Zacks Consensus Estimate for its current year earnings increased 3.4% over the last 60 days.
The stock has returned 33.47% year to date, outperforming the Zacks Transportation sector, which has returned merely 13.97% over the same period.