Best Transportation Stocks To Buy: Transportation stocks include planes, trains, and automobiles. Together, they run the world.
Companies and commodities rely on transportation companies to move goods. They are everywhere. Yet, investors have a tendency to overlook transportation stocks.
Granted, they aren’t flashy and they rarely capture headlines, but that doesn’t mean that this industry doesn’t deserve to be represented in your investment portfolio.
Pros and Cons of Transportation Stocks
The first thing you should know is that transportation stocks represent more than companies that move things.
Many investors look at the industry as a measure of efficiency in the economy. When the economic outlook is good, they are encouraged about the growth of the economy.
When investors are more bearish, transportation stocks tend to take a hit because they assume that the companies in that sector will move fewer things.
Sometimes, this downturn is irrational. For instance, the company in question could have lucrative contracts in place that will cause its income to be relatively steady for the next several years and have control over enough of its expenses that the company itself will remain as profitable as it ever was.
That said, there are some important upsides to consider before you invest in a transportation stock. For instance, they often pay dividends. Income investors can enjoy collecting the payouts.
Hawaiian Holdings [NASDAQ: HA] is the company behind Hawaiian Airlines. Its business is the transportation of goods and people between the Hawaiian Islands as well as cities in the United States, South Pacific, Australia, and Asia.
Hawaiian offers more non-stop service to and from the Hawaiian Islands than any other airline. To facilitate this, the company has alliances with almost a dozen airlines, including China Airlines, Delta, Turkish Airlines, and Virgin Australia.
These relationships help Hawaiian be more competitive in the routes it offers, but it does make the airline more reliant on third parties. Hawaiian Holdings’ mission is to improve access to and for the Islands while providing passengers with travel experience that represents Hawaiian culture and hospitality.
Like any airline, Hawaiian [NASDAQ: HA] is impacted by the economy. Visiting Hawaii is not inexpensive. During periods of economic downturn, fewer people fly and fewer people in Hawaii spend money on consumer goods.
Further, the price of fuel comes into play. Even if tons of people are flying and the people of Hawaii are ordering their weight in consumer goods, high fuel costs could drown out any profits the company makes. Hawaii Holdings also has to consider tourism in general.
In order for the company to be a success, Hawaii has to be an attractive tourist destination. In many ways, investing in Hawaiian Holdings is a bet on Hawaii as a popular travel option – and it is one that could pay off.
Right now, Hawaiian Holdings has a 21.4% upside based on our discounted cash flow forecast.
Alaska Air Group
Horizon focuses more on regional flights while Alaska is involved with the transportation of cargo and people throughout North America.
Alaska recently purchased Virgin America and integrated that acquisition. Thanks to a Single Operating Certificate issued by the FAA, Alaska and Virgin America are effectively one airline – and the fifth largest in the US at that.
Alaska [NASDAQ: ALK] focuses its operations on the West Coast and is building a special satellite concourse at the Sea-Tac Airport with 20 gates and a flagship lounge.
Some of the company’s efforts to reach the Pacific NW customer is to expand its food and beverage offerings. It strives to offer fresh foods, craft beers, local wines, and fresh juices.
The airline emphasizes the local connection through choice sponsorships as well, including the Seattle Mariners, Russell Wilson, and the San Francisco Giants.
Alaska also gets involved in the PNW community, donating cash, travel, and man hours towards local causes, education, and medical research.
It has been generating profits every year since 2003 and it is one of only three airlines to receive investment-grade credit ratings. According to our discounted cash flow forecast, Alaska Air Group is look at 10.8% upside.
Triton International Limited
Triton International Limited [NYSE: TRTN] leases the big steel boxes that companies use to move cargo or freight as well as the chassis that support those containers. As of the end of 2018, Triton had 3.7 million items for lease.
It has operations in 16 countries and access to roughly 45 countries through a network of third-party container facilities. Triton is not a very large business – it employed just 243 people as of December 31, 2018 – but it can be profitable.
The container transportation business has grown consistently from 1987 to 2018, boasting a growth rate of 8.1% per annum. Some of this was thanks to the way that manufacturing moved to countries with lower labor costs while other growth can be contributed to an increase in global trade – factors which may continue going forward.
We expect Triton International Limited [NYSE: TRTN] to have a 5% upside based on our discounted cash flow forecast. Almost 67% of the company’s business is in long-term leases and they have almost 4 years remaining on those leases on average.
Triton expects most of its customers to renew their container and chassis leases, but it does face stiff competition, both from other container leasing companies and companies buying their own containers.
Another potential issue facing Triton is credit insurance. The company let its coverage lapse in 2018, opening it up to potential losses.
JB Hunt [NASDAQ: JBHT] is one of the biggest transportation companies in North America. It handles delivery and logistics for wide range of customers including many client companies in the Fortune 500.
The company operates in four segments: Dedicated Contract Services® (DCS), Integrated Capacity Solutions (ICS), Intermodal (JBI), and Truckload (JBT).
JBI focuses on rail carriers in North America, providing pickup and delivery services for both point of origin and destination. It contributes more than $4.7 billion to the company’s bottom line.
The DCS segment is focused on supply chain activities and works within different types of transportation, primarily fin replenishment and final-mile delivery. It brought in $2.16 billion in revenue for 2018. ICS lets JB Hunt handle freight brokerage and logistics for its customers via third parties and other segments within the JB Hunt [NASDAQ: JBHT] family.
This segment had $1.33 billion in revenue for 2018. JBT focuses on moving freight by road via a collection of tractors and other transportation equipment. It is the smallest segment with $417 million in annual revenue.
Competition can be fierce in freight transportation and many of JB Hunt’s biggest risk factors are not under its control. Global economic trends come into play as well as government policies and taxation. Disruptions in transportation networks, from port-of-call to traffic jams, also have an impact.
Plus, much of what JB Hunt does involves third parties and that always introduces an uncertain element. That said, JB Hunt is predicted to have a 5.2% upside based on our discounted cash flow forecast.
Avis Budget Group
Through its own operations and that of its licensees, the Avis Budget Group has operations in 180 countries. It is one of the top airport rental companies in the world and one of the most popular truck rental companies in the country.
The company’s main strength is its diversification. Having different brands allows the company to cater its offerings towards target demographics.
At its most simple, the demand for business-related rentals during the week can be balanced by weekend leisure rentals. Avis Budget is working to retain and grow its customer base through technology-powered capabilities that allow users to customize their experience using a smartphone.
This includes everything from the wait times for airport shuttles to tailored insights that customers may need during the rental, such as what to do in an emergency or where to find food. We expect Avis Budget Group [NASDAQ: CAR] to have 2.6% upside based on our discounted cash flow forecast.
Investing in Transportation Stocks
When the economy is good, the Fed cuts rates, or there is some other reason to be bullish about the economy, many transportation stocks see a boost.
Depending on your investment horizon, you may be able to capitalize on this increase while enjoying a decent dividend.
Whether or not transportation stocks work for your portfolio will depend on your investment goals, your tolerance for risk, and the time you expect to hold each investment.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.