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Transport Services Aided by Multiple Tailwinds: 3 Top Picks

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The healthy state of the U.S. economy is highlighted by the fact that consumer confidence — a key determinant of the economy’s health — touched an 18-year high in August 2018. Moreover, the U.S. economy witnessed the fastest wage growth since 2009 and added jobs for the 95th straight month in August.

Strong U.S. macroeconomic fundamentals along with rising disposable income in the hands of Americans, thanks to a much-improved job scenario, are encouraging them to increasingly go for vacations.

With the broader transportation sector standing to benefit from an improving domestic economy, it is obvious that companies offering logistics, leasing and maintenance services to transporters are also reaping the benefits.

 

 

Strong Freight Demand & Other Tailwinds

Increased freight demand is a tailwind for third-party logistics companies like C.H. Robinson Worldwide, Inc. (CHRW - Free Report) , which falls under the Zacks Transportation Services industry. Higher freight rates coupled with robust shipping demand are major the positives for service providers. With the economy on a solid footing as mentioned above, demand for freight is on an upswing. This is because robust growth in manufacturing, construction, mining and automobile production leads to an uptick in freight demand.

The upbeat freight scenario in the United States is highlighted by the fact that the Cass Freight Shipments Index increased 6% year over year in August to 1.227. Importance of the data can be gauged from the fact that many market watchers consider the Cass Freight Index as the most accurate measure of freight volumes and market conditions.

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 is likely to generate significant demand for the manufacturing sector, which in turn will boost freight demand, thereby aiding the transportation services industry.   

Additionally, the new tax law (Tax Cuts and Jobs Act), which came into force late last year, is a boon for the service providers and promotes shareholder-friendly activities like dividend payouts. For instance, Expeditors International of Washington Inc.  (EXPD - Free Report) , a major player in the industry, hiked its semi-annual cash dividend to the tune of 7.1% in May.

A further increase in shareholder-friendly activities is likely in the wake of massive savings prompted by the new tax law. Most of the transport service providers book bulk of their revenues in the homeland. Consequently, a significant reduction in corporate tax rate borne by them would be immediately accretive to cash flow.

Moreover, the recent Hurricane Florence could be a blessing in disguise for transportation service providers due to relocation and relief supply needs following the devastation.

Industry Returns Outpace Sector’s Yield in Six Months

The bullish picture surrounding the Zacks Transportation Services industry is highlighted by its impressive price performance over the last six months. While the stocks in this industry have collectively rallied 5.2%, the Zacks Transportation Sector has gained 2.9% in the period.

Six-Month Price Performance

 

Given this backdrop, it seems to be a good idea for investors to add stocks from the transportation services industry to their portfolio for higher returns.

How to Identify Outperformers

However, the task of selecting the right stock is by no means an easy one as the Zacks Transportation Services industry includes 25 stocks. 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 handy. All three stocks sport a Zacks Rank #1 (Strong Buy) and have witnessing upward earnings estimate revisions. You can see the complete list of today’s Zacks #1 Rank stocks here.

Echo Global Logistics, Inc.  is a leading provider of technology enabled transportation and supply chain management services. The stock has gained 24.6% over the past six months. The Zacks Consensus Estimate current-year earnings has been revised upward to the tune of 11.4% over the last 60 days.

 

 

Matson, Inc. (MATX - Free Report) operates as an ocean transportation and logistics company. It offers shipping logistics services in Hawaii, Guam, and Micronesia islands and expedited service from China to southern California. The stock has gained 20.7% over the past six months. The Zacks Consensus Estimate current-year earnings has been revised upward to the tune of 6.8% over the last 60 days.

 

Hub Group, Inc. (HUBG - Free Report) is a provider of intermodal transportation, truck brokerage and logistics services in North America.

The stock has gained 4.5% over the past six months. The Zacks Consensus Estimate current-year earnings has been revised upward to the tune of 14.5% over the last 60 days.

 

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