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4 Transportation Stocks That Could Beat the Market in 2019

Maharathi Basu

The Zacks Transportation Sector is about to close the year 2018 on a negative note.This key sector has logged nearly 20% losses since the beginning of this year. The sell-off has been blamed on multiple woes, including volatile oil prices, labor woes and weather-related disruptions.

In fact, the diversified transportation sector, which includes airline operators, railroads, truckers, third-party logistics (3PL) companies and shippers, to name a few, has performed worse than the Zacks S&P 500 composite, which has declined 6.9%. The coveted index has suffered due to factors like weaker earnings growth, U.S.-China trade war related disputes, Fed rate hike and government shutdown worries among others.

Price Performance

Why Transports Suffered in 2018?

The lackluster performance of transportation stocks in 2018 was mainly due to oil prices, which were on an uptrend for most of the year. West Texas Intermediate (WTI) started the year just above $60 per barrel and touched multi-year highs of more than $76 in early October.

With expenses on fuel representing one of the largest inputs for transports, this sharp increase in crude prices did not bode well for the sector. Escalating fuel costs apart, high expenses on the labor front, declining coal volumes, disruption in operations due to inclement weather and political uncertainties also plagued the sector.

What AwaitsTransports in 2019?

Now the question is, will transportation stocks be able to revive their sagging fortunes, thereby outshining the broader market's performance next year. Let’s try and gain some clarity on that.

In a stunning turnaround of fortunes, oil has been on a downward trend since early October. The commodity has plunged more than 35% on fears of supply glut and economic headwinds. With oil prices poised to end 2018 on a low note, transports should breathe a sigh of relief going into the new year.

Even though, many analysts believe that oil could experience a recovery in 2019, it is highly unlikely that the commodity will touch the highs of 2014 when it traded above $100 a barrel. This certainly bodes well for transports.

Subdued oil prices apart, robust e-commerce growth should stand package delivery companies like United Parcel Service, Inc. UPS in good stead next year. Moreover, 3PL providers like C.H. Robinson Worldwide CHRW should enjoy a fruitful 2019 on the back of impressive freight demand. Strong air travel demand is expected in 2019, which bodes well for airlines.

Volume growth and improvement in a key metric — operating ratio (operating expenses as a percentage of revenues) — are expected in 2019 for railroads, another key component of the sector. Low tax rates should also fuel growth of transportation stocks in the coming year.

Impressive Sector Rank Supports Turnaround

The Zacks Transportation Sector is poised to end 2018 on an impressive note. The sector is ranked 4th among the 16 Zacks sectors. The Zacks Sector Rank is an important tool in designing a winning portfolio of stocks.  Given the impressive sector rank, we expect transports to perform impressively the new year on the back of the tailwinds mentioned above.

On the basis of trailing 12-month Price-to Book Value (P/B), which is a commonly used multiple for valuing transportation stocks, the sector is currently trading at 2.7X compared with the S&P 500’s 3.5X.

Valuation

In view of the encouraging prospects, we believe transports will be good investment options for 2019. Consequently, we have picked four transportation players with a Zacks Rank of #1 (Strong Buy) or 2 (Buy) and VGM Score of A or B for investors. You can see the complete list of today’s Zacks #1 Rank stocks here.

ArcBest Corporation ARCB provides freight transportation services and solutions. This Zacks Rank #1 stock has seen the 2019 earnings estimate being revised upward to the tune of 17% over the last 90 days. It has a VGM Score of A.

Spirit Airlines SAVE based in Miramar, FL is an ultra-low-cost carrier. This Zacks Rank #1 stock has seen the 2019 earnings estimate being revised upward to the tune of 25.4% over the last 90 days. It also has a VGM Score of B.

Seaspan Corporation SSW is a leading independent owner, operator and manager of containerships. This Zacks Rank #2 stock has seen the 2019 earnings estimate being revised upward to the tune of 15.6% over the last 90 days. It also has a VGM Score of A.

Triton International Limited TRTN based in Hamilton, Bermuda, is the largest lessor of intermodal containers. This Zacks Rank #2 stock has seen the 2019 earnings estimate being revised upward to the tune of 2.5% over the last 90 days. It also has a VGM Score of A.

In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?

These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>


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Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
 
Triton International Limited (TRTN) : Free Stock Analysis Report
 
Seaspan Corporation (SSW) : Free Stock Analysis Report
 
C.H. Robinson Worldwide, Inc. (CHRW) : Free Stock Analysis Report
 
ArcBest Corporation (ARCB) : Free Stock Analysis Report
 
United Parcel Service, Inc. (UPS) : Free Stock Analysis Report
 
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