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5 Transportation Stocks to Gain From 5-Month Low Oil Prices

Swarup Gupta
Per Goldman Sachs, U.S. crude production will increase during the second half of 2019, pulling prices lower.

On Jun 12, oil prices plunged to their lowest levels since January. A substantial increase in U.S. crude inventories was the immediate trigger for the day’s losses. The quantum of decline was probably attributable to the fact that it has happened for the second week in a row even as the U.S.-China trade war continues with no quick end in sight.

Meanwhile, oil cartel OPEC and other major crude exporters are likely to meet sometime in the next few weeks to take a call on existing production controls. A further clampdown on production could boost prices.

But this is unlikely to have any long-term impact, per Goldman Sachs GS, since U.S. production will increase further during the second half of 2019. Under such circumstances, it makes sense to add transportation stocks to your portfolio, since they will gain substantially from lower crude prices.

Spike in U.S. Inventories Boosts Prices

On Wednesday, WTI crude slumped $2.13 or 4% to settle at $51.15 a barrel. This was the lowest settlement recorded since Jan 14. Also, Brent crude declined $2.32 or 3.7% to finish at $59.97 a barrel. This is Brent crude’s first settlement below the $60 level since January.

The catalyst for these losses was a second-straight increase in weekly crude inventories. Per the Energy Information Administration (EIA), U.S. crude inventories increased by 2.2 million barrels during the week ended Jun 7.

For the week ended Jun 7, analysts at S&P Global Platts had projected a moderate increase of 80,000 barrels. A Reuters poll had even predicted that supplies would decline by 481,000 barrels. On Jun 11, the American Petroleum Institute (API) had stated that U.S. crude supplies had increased by 4.9 million barrels over this period.

Will Prices Stabilize After the OPEC Meet?

All eyes are now on a meeting of OPEC members and other major crude exporters, slated to be held in the next few weeks. Market watchers will subsequently learn whether the production bloc and its collaborators will extend production controls even further.

However, the investment bank thinks the exact timing of the meeting remains uncertain. This is because OPEC was initially considering a Jun 25-26 meet, per Bloomberg, while Russia is pressing for a Jul 3-4 timeline.  

At the same time, Goldman Sachs feels that OPEC will extend the duration of its production controls after such a meeting. The initiative is likely to be taken by key cartel members, such as Saudi Arabia and United Arab Emirates.

But the effect of such an extension will likely only be “modestly supportive.” This is because oil prices will come under renewed pressure during the second half of the year. At this point, additional U.S. infrastructure will become operational, leading to the availability of fresh crude supplies.

Our Choices

A second straight increase in U.S. crude stockpiles has led to yet another plunge in crude prices. The effect of this recurrent buildup is likely to last until OPEC acts to extend its production controls, raising price expectations. However, Goldman feels the impact of such actions will be temporary at best since additional U.S. crude supplies are slated to come online in a few months.

Transportation will benefit from lasting low crude prices. This will not only result in cost savings for the sector, but also boost consumer spending, and in turn global trade. This is why it makes sense to invest in transportation stocks. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fly Leasing Limited FLY is engaged in acquiring and leasing modern, high-demand and fuel-efficient commercial jet aircraft under long-term contracts to a diverse group of airlines throughout the world.

Fly Leasing has a VGM Score of A. The company’s projected growth rate for the current year is 36.3%. The Zacks Consensus Estimate for the current year has improved by 31.3% over the past 30 days.   

StealthGas Inc. GASS is a provider of international seaborne transportation services to LPG producers and users.

StealthGas has a VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 41.2% over the past 30 days.   

Marten Transport, Ltd. MRTN is a long-haul truckload carrier providing protective service and time- sensitive transportation in the United States.

Marten Transport has a VGM Score of A and projected growth rate of 12.3% for the current year.

Textainer Group Holdings Limited TGH is a lessor of intermodal containers.

Textainer Group has a VGM Score of B. The company’s projected growth rate for the current year is 58.3%. The Zacks Consensus Estimate for the current year has improved by 6.9% over the past 30 days.   

Global Ship Lease, Inc. GSL is a containership charter owner.

Global Ship Lease has a VGM Score of B. The company’s projected growth rate for the current year is 6.3%.The Zacks Consensus Estimate for the current year has improved by 3.3% over the past 30 days.    

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Textainer Group Holdings Limited (TGH) : Free Stock Analysis Report
 
Fly Leasing Limited (FLY) : Free Stock Analysis Report
 
Global Ship Lease, Inc. (GSL) : Free Stock Analysis Report
 
StealthGas, Inc. (GASS) : Free Stock Analysis Report
 
Marten Transport, Ltd. (MRTN) : Free Stock Analysis Report
 
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
 
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