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4 Top-Ranked Transport Equipment and Leasing Stocks to Buy

Zacks Equity Research

The diversified transportation sector, which includes airline companies, railroads, truckers and shippers, to name a few, recovered in 2017 after struggling for most of 2016.

An improving U.S. economy, substantial surge in manufactured and retail goods, and a sharp rebound in a number of end markets are expected to fuel growth of the transportation sector. Consequently, companies offering equipment financing and leasing, logistics and supply chain management services to transporters have also bounced back in 2017.

Strong U.S. Economic Fundamentals

Strong GDP growth supported by encouraging labor market, retail sales and industrial production data has accelerated economic activities. Consumer spending has increased, driven by encouraging economic conditions and strong government outlays.

In the third quarter of 2017, the U.S. economy improved at an impressive annual rate of 3.3%. It came in above the consensus estimate of 2.6% and the second quarter figure of 3.1%. This was also the first time since 2014 that the GDP grew at 3% year over year for two consecutive quarters. Moreover, business investment increased 3.9%, inventories rose 0.7% and the trade sector gained 0.4%.

Consumer Confidence Rising

Consumer confidence hit a new 17-year high on November 2017. This was also the fifth straight month of growing consumer confidence. In the last five months, the present situations index advanced from 152 to 153.9, while the expectations index increased from 109 to 113.3. The U.S. economy has started expanding close to the range expected by Trump and some other Republicans, while both manufacturing and service sectors have accelerated at a record pace for the last couple of months.

Improving Labor Market

The U.S. economy rebounded from the hurricanes and added 261,000 jobs in October 2017. Unemployment rate was 4.1%, the lowest since December 2000. The more the confidence households generate the more will they spend.

Notably, consumer spending accounts for roughly 70% of the U.S. economy. Further, Lynn Franco, Director of economic indicators and surveys at The Conference Board, said consumers “foresee the economy expanding at a healthy pace into the early months of 2018.” (Read: Consumer Confidence Hits Fresh 17-Yr High: 4 Picks)

Effect on Transport Sector

A thriving and improving economy also supports the overall bullishness of the transport sector as it implies that more goods are being transported across the United States. Year-to-date, the Transportation sector has gained 10.56% driven by overall improvement in business confidence and a more positive outlook toward the industrial sector.

Improved global growth prospects and sustained business and consumer confidence have in turn helped the transport sector to recover from the sluggishness in 2016 to quite an extent. Easily available credit also strengthens the situation. As a result, companies which offer equipment financing, leasing, logistics and supply chain management to transporters are also enjoying a bull run.

Transport-Equipment and Leasing Industry Sports Strong Zacks Rank

The Transportation Equipment Financing and Leasing industry is currently in a great position from the Zacks Industry Rank perspective. The industry is currently in the top 7% (19 out of 256) of the Zacks Categorized industries, suggesting it is well-positioned, especially when compared with other segments out there. Airline (in top 32%), Trucking (in top 34%) and Freight Rail (in top 37%) are other transportation industries currently within the top 50% bracket of the Zacks Categorized industries.

Our Choice

Given this scenario, we suggest four stocks to investors with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. These stocks also promise strong near-term growth.

Textainer Group Holdings Ltd. TGH: Headquartered in Hamilton, Bermuda, this company is the world’s largest lessor of intermodal containers with a total fleet of more than 1.3 million containers, representing over 2,000,000 TEU. Textainer Group has long-term (three-five years) earnings per share (EPS) growth estimate of 12%.

Triton International Ltd. TRTN: Also headquartered in Hamilton, Bermuda, this company offers acquisition, leasing, re-leasing and sale of intermodal containers. Triton International has long-term (three-five years) EPS growth estimate of 7.50%.

CAI International Inc. CAI: Headquartered in San Francisco, CA, this company is one of the world's leading intermodal freight container leasing and management companies. Intermodal freight containers are large, standardized steel boxes, which CAI leases primarily to international steamship companies. CAI has long-term (three-five years) EPS growth estimate of 8%.

The Greenbrier Companies Inc. GBX: Headquartered in Lake Oswego, OR, this company is a leading supplier of transportation equipment and services to the railroad and related industries. The Greenbrier has long-term (three-five years) EPS growth estimate of 9.50%.

Chart Looks Attractive

The chart below depicts the strong performance of the above-mentioned companies compared with the industry on a year-to-date basis.

Bottom Line

The U.S. economy is gathering steam. With the overall economy back on track, things are looking up for the transportation sector as well. With just a month remaining before we bid adieu to 2017, this key sector (one of the 16 Zacks sectors) is likely end the year on a triumphant note. At this stage, we believe that these four stocks with a favorable Zacks Rank are poised to capitalize on the growing opportunities.

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Greenbrier Companies, Inc. (The) (GBX) : Free Stock Analysis Report
CAI International, Inc. (CAI) : Free Stock Analysis Report
Triton International Limited (TRTN) : Free Stock Analysis Report
Textainer Group Holdings Limited (TGH) : Free Stock Analysis Report
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