The transportation sector seems to be poised well not only in the near term but also in the long haul due to robust freight demand on the back of a strong economy. Substantial surge in manufactured goods, massive tax hauls and business friendly policies of the government is anticipated to fuel the transportation sector’s growth. Year to date, the Dow Jones Transportation Average Index (DJT) has grown more than 14%.
Consequently, the companies offering equipment financing and leasing, logistics and supply chain management services to transporters are also likely to perform well in the near future. At this stage, investment in transportation services stocks with favorable Zacks Rank will be a prudent move.
Robust Industry Data
Industry bodies of several transportation industries, such as, freight rail, airlines, trucking and shipping have forecasted strong growth for their industries.
In February 2019, the Association of American Railroads (“AAR”), the industry body of the class 1 freight railroad operators, reported that total U.S. rail traffic for the first six weeks of 2019 was 3.074.434 carloads, up 0.9% year over year. AAR is optimistic that rail traffic growth rate momentum will continue in the near term.
In December 2018, the International Air Transport Association ("IATA") predicts global net profit of $35.5 billion for the industry in 2019. This is much higher than the profitability of $32.3 billion for 2018. This bright projection can be attributed to strong demand for air travel.
In its 2018 freight transportation forecast, the American Trucking Association (“ATA”) has predicted that there will be persistent growth for truckers driven by manufacturing, consumer spending and international trade over the next 12 years.
Moreover, recent positive developments on the United States – China trade war front and decision of the Chinese authorities to stimulate the economy will be major catalysts for the shipping industry. In 2019, the shipping industry will be driven by growth in world trade especially the demand from newly-industrialized emerging economies.
Strong US Economy
Conference Board’s Consumer Confidence index for February surged to 131.4, its highest level in four months. The consensus estimate was 124.8. Moreover, the Future expectation index (which track consumer’s expectations for next six months) jumped 103.4 from 89.4.
On Feb 1, the Institute for Supply Management (“ISM”) reported that the U.S. manufacturing expanded in January for the 117th consecutive month. The January index came in at 56.6 surpassing the consensus estimate of 54.3. Notably, any reading above 50 indicates expansion of the manufacturing sector and a reading above 55 highlights robust manufacturing growth.
The U.S. economy added 304,000 jobs in January 2019, significantly higher than the consensus estimate of 154,000. In comparison, the economy added 223,000 jobs per month in 2018 on average, the strongest in three years. These gains have come despite indications from several quarters that the economy is near full employment.
At this stage, investing in transportation services stocks with strong growth potential will be lucrative. However, picking winning stocks may be difficult.
This is where our VGM Score comes in handy. 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 our search to four such stocks each carrying either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and VGM Score of either A or B. You can see the complete list of today’s Zacks #1 Rank (strong Buy) stocks here.
Expeditors International of Washington Inc. EXPD provides logistics services in the Americas, North Asia, South Asia, Europe, the Middle East, Africa, and India. It has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of 11.5% for current year.
Hertz Global Holdings Inc. HTZ provides airport and off airport vehicle rental and leasing services. It has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 232% for current year.
REV Group Inc. REVG designs, manufactures, and distributes specialty vehicles in the United States, Canada, Europe, Africa, the Middle East, Latin America, the Caribbean, and internationally. It has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 4.5% for current year.
Herc Holdings Inc. HRI designs, manufactures, and distributes specialty vehicles in the United States, Canada, Europe, Africa, the Middle East, Latin America, the Caribbean, and internationally. It has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 831% for current year.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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