3 large-cap transportation stocks in sight despite market heckling – September 20, 2022
Inflation in the United States continues to be near its highest level in 40 years. To control inflation, the Fed adopted a hawkish position. The central bank, which has already raised interest rates by 225 basis points so far this year, is expected to announce another 75 basis point rate hike at its meeting this week after reading the inflation higher than expected for the month of August. Higher interest rates increase the cost of borrowing, increasing the risk of an economic downturn.
The geopolitical tensions between Russia and Ukraine, which have sent fuel prices skyrocketing, have further aggravated the woes. Rising fuel costs are very damaging to Zacks Transportation’s highly diversified business, when it comes to cohort inventory growth. Indeed, fuel expenses represent an important part of the total operating costs of any transport actor. Supply chain issues and labor shortages are also hitting industry players hard.
Due to the headwinds mentioned above, the sector is down 19.6% so far this year.
Image source: Zacks Investment Research
Given the sector’s lackluster year-to-date price performance, several transportation stocks are currently trading well below their 52-week highs despite strong fundamentals.
With market volatility and sector-specific headwinds unlikely to go away soon, we believe investors interested in the sector should keep an eye on stocks like Former Dominion Freight Line (ODFL – free report), Delta Airlines (LAD – free report) and Washington International Shippers (EXPD – free report). These stocks have declined significantly this year so far, but show strong potential.
The pink demand scenario helps the sector
With the easing of coronavirus related restrictions, economic activities are resuming and people are returning to their pre-pandemic lifestyle. Rising trade volumes brightened the demand scenario for transport players.
For example, airlines in the sector are well served as people again take to the skies, in turn increasing passenger numbers. In fact, airlines are still attracting healthy traffic even though the peak summer season has passed. This prompted some airlines to provide impressive projections for the third quarter of 2022. The sector’s maritime inventories are also benefiting from a strong increase in demand for goods and raw materials.
Again, thanks to strong demand, the freight scenario is picking up in the United States. This improvement is reflected in the 6.6% growth of the Cass Freight Shipments Index month over month in August. The metric improved 3.6% year over year. The August reading was the best since May 2019.
3 stocks to watch from the transport sector
Given the tailwind above, avoiding stocks in the sector due to market volatility and uncertainty will not be a wise move. We have identified three transportation stocks using the Zacks Stock Screener, which currently have a market cap of over $10 billion and a Zacks Rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
These stocks are currently trading near their 52-week lows, but have strong potential, having witnessed favorable revisions to earnings estimates lately.
Former Dominion Freight Line has a market cap of $28.87 billion. This Thomasville, North Carolina-based trucking company is being helped by rising LTL (Less-Than-Truckload) shipments.
Old Dominion shares have lost 29.3% of their value so far this year. ODFL is currently trading at $258.28, well below its 52-week high of $373.58 and close to its 52-week low of $231.31. The stock has seen a 2.45% northward revision to the Zacks consensus estimate for current-year earnings over the past 60 days. He has a growth score of A.
Delta has a market cap of $21.12 billion, currently. Atlanta, GA-based DAL is buoyed by rising demand for air travel (particularly for leisure).
Delta shares have lost 16.5% of their value so far this year. DAL is currently trading at $32.94, well below its 52-week high at $46.27 and near its 52-week low at $28.09. The stock has seen a 1.1% upward revision to the Zacks consensus estimate for current-year earnings over the past 60 days. He has a growth score of A.
Senders has a market cap of $15.63 billion. This Seattle, WA-based freight forwarder is backed by strong airfreight revenues.
Shares of Expeditors have lost 33.4% of their value so far this year. EXPD is currently trading at $93.17, well below its 52-week high of $137.80 and near its 52-week low of $90.08. The stock has seen a 3% upward revision to the Zacks consensus estimate for current-year earnings over the past 60 days. He has a growth score of A.