The transportation sector has outperformed the market over the last three weeks after posting a considerable amount of losses during the last three months. Several stocks within the sector have posted large gains during this time but are still presenting value after losing a large portion of value over the last three months.
|3 Month||13 Day|
The chart above shows the comparison between the S&P 500 and the transportation sector. As you can see the transportation sector has underperformed the market over the last three months. However it has outperformed the market since October 4. Since October 4 the market has trended higher, posting gains of 7.66% yet the transportation sector has posted a gain of 10% during the same period. Below is a chart of five large stocks within the sector and each company's performance during the same time period, along with my pick as the best transportation stock over the next few years, XPO Logistics.
|Company||Ticker||3 Month||13 Day|
|United Parcel Service||UPS||(5.81%)||11.3%|
|Union Pacific Corp.||UNP||(4.49%)||19.44%|
|Norfolk Southern Corp.||NSC||(8.2%)||15.2%|
The three week gain of each stock is remarkably impressive and I believe each stock is still presenting a large amount of value. Each of the six stocks listed above were trading near 52-week highs before the downtrend began in August. And each company is on pace to post its best year in earnings and revenue over the last five years. Therefore I believe that each stock would make a great addition to a portfolio as a company that is presenting value with the likelihood to rise.
UPS is probably the safest investment as its 12.77% off its five year high and has a yield of 3.01. The company has consistently increased its dividend over the last five years and because of its growth I believe it will post gains as the market improves. Union Pacific, Norfolk Southern and C.H. Robinson have each trended higher over the last five years and have a yield between 1.50 - 2.50. Each company is growing and comes with a substantial amount of upside with both security and growth within a portfolio.
I believe that FedEx is by far the best stock of the large transportation companies on this list. Even after the stock's 17% gain over the last three weeks it still lost 17% over the last three months. FedEx has a strong balance sheet with nearly $2 billion in cash and a low debt-to-asset ratio compared to others within its industry. The company is on pace to post its best year of earnings in more than five years, yet it's trading 40% lower than its five year high in 2007. Because of its strong fundamentals and its value presenting price I believe it's very possible that this stock could double, or maybe more, over the next 16 months as the market recovers.
Most wouldn't suggest that XPO Logistics should be on this list. Yet I am very bullish regarding the future of this fundamentally sound small-cap stock. Before the sell-off within the market occurred in late July, XPO was trading over $17 a share, post split. And now the stock is trading at $10.25 after gaining nearly 45% during the last three weeks. The loss over the last three months occurred with no negative developments from the company nor has there been any reason to suggest that this company's outlook has changed in any way. In fact there is nothing but positives and optimism surrounding this company and its stock.
XPO began trending higher in mid June after Bradley Jacobs announced a $150,000,000 equity investment along with taking over as CEO. Then from June 13 until July 21 the stock doubled only to crash hard with the market. I believe that now is the time to buy this stock as I doubt there will be another opportunity to purchase the stock near this current price. The new CEO has taken four small companies and turned each company into a multi-billion dollar company in a short period of time. And now that he is managing a company in one of the largest industries in the world there is no reason to believe that he cannot once again turn a small company into a billion dollar company.
In a Reuters interview he explained his strategic plan to acquire small and medium size companies to aid in growth and his plan to turn the company into a multi-billion dollar corporation. The company has drastically increased earnings over the last two years and has a strong balance sheet with a $150 million equity investment, from its new CEO, which will most likely be used to purchase a company that will assist in growth. I can't find any reason to doubt XPO's new CEO since he has proven time after time that he can take any company within any industry and build a multi-billion dollar company. Therefore I believe XPO presents the most upside of any stock on this list and although its place on this list may be inappropriate I am willing to bet that in a few years XPO will be included in many articles covering the transportation sector.
The bottom line is that the transportation sector is a growing and undervalued area of the market and that each of these stocks are far from reaching a limit. Stocks within this sector are not always the most popular but as an investor if you are seeking value in stocks presenting record fundamentals along with an encouraging outlook then you may want to consider an investment in one of these six stocks.
Disclosure: I am long XPO.
Additional disclosure: I may initiate a long position in FDX over the next 72 hours. As with any investment, due diligence is required. The opinions in this article are not intended to be used to make a particular investment or follow a particular strategy.