The diversified transportation sector, which includes airline operators, railroads, truckers and shippers to name a few, gained foothold in the last quarter of 2017 after struggling for most of the year. As the U.S. economy continues to grow, demand for carriage is also increasing and this momentum is anticipated to sustain in 2018.
Consequently, companies offering equipment financing and leasing, logistics and supply chain management services to transporters have also rebounded in 2018. At this stage, investment in transportation services stocks with favorable Zacks Rank will be a prudent move.
Tax Overhaul: A Major Boost
The two pro-growth agendas of President Trump, namely, significant cut in corporate tax and deregulation are major catalysts to the Transportation sector. The corporate tax rate was recently lowered from 35% to 21%, its historic low in 78 years. A large part of transporters book much of their revenues in the homeland. Consequently, a significant reduction in corporate tax rate borne by transporters would be immediately accretive to cash flow.
Robust Demand for Freight
A thriving and improving economy supports the overall bullishness of the transport sector, as it implies that more goods are being transported across the United States. Improved global growth prospects, sustained business and consumer confidence have in turn helped the transport sector recover from the sluggishness in 2017 to quite an extent.
Economic growth and demand for freight are positively correlated. Healthy growth in manufacturing, construction, mining and automobile production will increase demand for more freight.
Moreover, the Trump administration intends to spend a whopping $1.5 trillion on several infrastructure projects like constructing new roads, bridges, highways, railways and waterways across the country over a period of 10 years. This project will generate significant demand for manufacturing sector, which in turn will raise demand for freight, benefiting the transportation sector.
Zacks FavorsTransportation-Services Industry
The Transportation Services industry is currently in a strong position from the Zacks Industry Rank perspective. The industry is currently in the top 38% (97 out of 256) of the Zacks categorized industries, suggesting it is well-positioned. Historically, the top 50% of the Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.
Our Top Picks
Transportation sector is the lifeblood of the economy as it moves freights across the country and offshore. Favorable economic condition along with promising fiscal and regulatory policies from the Trump administration bode well for the sector. Consequently, growth potential of transportation services stocks make them lucrative.
We have narrowed down our search on four stocks carrying Zacks Rank #1 (Strong Buy) with strong growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
Chart below shows price performance of our five picks in the last three months.
Herc Holdings Inc. (HRI - Free Report) is a full-line equipment-rental supplier in commercial and residential construction, industrial and manufacturing, refineries and petrochemicals, civil infrastructure, government and municipalities, energy, emergency response, entertainment and agriculture.
Herc Holdings has expected earnings growth of 487.5% for current year. The Zacks Consensus Estimate for the current year has improved by 34.8% over the last 30 days.
Expeditors International of Washington Inc. (EXPD - Free Report) is a leading provider of global logistics solutions. It offers its customers a seamless international network supporting the movement and strategic positioning of goods.
Expeditors International has expected earnings growth of 23.8% for current year. The Zacks Consensus Estimate for the current year has improved by 6.6% over the last 30 days.
Echo Global Logistics Inc. (ECHO - Free Report) is a leading provider of technology enabled transportation and supply chain management services.
Echo Global has expected earnings growth of 62.8% for current year. The Zacks Consensus Estimate for the current year has improved by 12% over the last 30 days.
Aircastle Ltd. (AYR - Free Report) is a global company that leases high utility commercial jet aircraft to passenger and cargo airlines.
Aircastle has expected earnings growth of 3.3% for current year. The Zacks Consensus Estimate for the current year has improved by 2.3% over the last 30 days.
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