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US Transportation Overshadows Rate Hike Woes: 4 Top Picks

Nitish Marwah
The transportation sector has been growing by leaps and bounds in the United States, primarily on the back of optimism surrounding the economy and robust domestic demand.

The U.S. transportation industry has been firing on all cylinders lately. A burgeoning U.S. economy has paved the way for such growth. In fact, a report by Fitch Ratings suggests that the space will witness immense growth in the months ahead.

Also, Fed’s rate-hiking spree will seemingly have little to no effect on the sector’s fortunes, other than raising borrowing costs meagerly. Under such conditions where the transportation industry is set to gain, investing in stocks from the space seems prudent.

Fitch Ratings Predict Tremendous Growth in U.S. Transportation

Per the latest report by Fitch Ratings, released on Oct 22, the three major transportation segments of the United States, the roadways, airports and seaports would continue to witness growth in the coming days despite rate hikes. Consistent efforts by the Federal Reserve to increase in benchmark interest rates due to strong economic fundamentals are expected to steeply increase the borrowing costs across the sector.

Further, an increase in capital improvement spending needs might also impede growth for the transportation sector. However, Stacey Mawson, Director in Fitch’s Global Infrastructure group stated that the space enjoys “high ratings” and a “high rate” of fixed-rate debt would reduce the effects of future rate hikes.

Traffic Revenue Growth Strong

Notably, airports in the United States have witnessed nearly double the growth in enplanement year over year. For the first six months of 2018, enplanements at airports surged to 5% from 2.6% growth in the same period in 2017. U.S. ports have also witnessed solid growth in the first six months of 2018 at a healthy 4.8%.

Finally, the report expects traffic and revenue growth for toll roads to stay on track for solid growth in the coming months. For the record, facilities in the Southeast and Southwest averaged 5% and 3.8% in year-to-date growth. This was achieved right after hurricane-related impediments kept business low in the latter half of last year.

Freight Activity in the U.S. Remains Robust

The Cass Freight Index surged 8.2% year over year in September. The report also shed light on the fact that the U.S. economy continues to remain resilient to trade war woes and the transportation sector to rate hikes.

Finally, the Cass Truckload Linehaul Index, measuring per-mile full-truckload pricing edged up by 9.8% year-over-year from 2017, hitting an all-time high on a nominal basis.

4 Best Plays

The transportation sector has been growing by leaps and bounds in the United States, primarily on the back of optimism surrounding the economy and robust domestic demand. With an impressive increase in freight and full capacity truck loading activities, it would be judicious to invest in transportation stocks.

In this context, we have selected four stocks that are expected to gain from these factors. These stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Atlas Air Worldwide Holdings, Inc. AAWW is a provider of outsourced aircraft and aviation operating services across the globe.

The company is based out of Purchase, NY and carries a Zacks Rank #1. The expected earnings growth rate for the current year is 39.39%. The Zacks Consensus Estimate for the current year has improved 0.7% over the past 60 days.

Matson, Inc. MATX is a provider of ocean freight transportation and logistics services.

The company is based out of Honolulu, HI and sports a Zacks Rank #1. The expected earnings growth rate for the current year is 32.47%. The Zacks Consensus Estimate for the current year has improved 0.9% over the past 60 days.

Norfolk Southern Corporation NSC engages in rail transportation of raw materials, intermediate products, and finished goods.

This Zacks Rank #2 company is based out of Norfolk, VA. The expected earnings growth rate for the current year is 38.63%. The Zacks Consensus Estimate for the current year has improved 0.3% over the past 60 days.

Trinity Industries, Inc. TRN is a provider of railcars such as auto-rack, box, covered hopper, gondola, intermodal, tank as well open hopper cars.

This Zacks Rank #1 company is based out of Dallas, TX. The expected earnings growth rate for the current year is 7.89%. The Zacks Consensus Estimate for the current year has improved 3.8% over the past 60 days.

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Trinity Industries, Inc. (TRN) : Free Stock Analysis Report
 
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Atlas Air Worldwide Holdings (AAWW) : Free Stock Analysis Report
 
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