Wall Street Verdict: Transportation Sector is the Place to Find Good Investment

Wall Street Verdict: Transportation Sector is the Place to Find Good Investment

Although somewhat less pronounced, the global economic meltdown of 2008 made most investors to expect less from the U.S. economy. What is certain is that, for the U.S. economy, the best-case scenario involves average growth in coming years while the most likely scenario may be a tepid growth within the next few years. Given all of the economic concerns, the transportation sector is not expected to be the place to find good investments because it tends to move in step with the broader economy. However, many transport companies have continued to fare quite well since 2009 - the year when the recession ended(Resee, 2013). What had became clearer since 2010 is that the railroad and trucking companies can offer good returns on investments(ROI).

With fair justification, I can say here that the talk of economic doom and gloom which kept many of the valuations made on transport stocks at very conservative  levels have not in any way affected their returns: These companies have continued to produce strong growth in recent years. According to Morningstar, as of April 19, railroad stocks are up by about 15 percent while trucking stocks  are up 18 percent – an indication that investors have begun to warm to them.

In this article, I will present some of the transport stocks that looks like they not only  have a lot more room for investment but will also be profitable in terms of yielding profitable returns. Before doing that, I will make one convincing case here: From a financial and investment standpoint, in order to limit stock-specific risk, you should invest in stocks like these within the context of a well-diversified portfolio.

Here are three  good transport stock to invest in.

C.H. Robinson Worldwide(CHRW)

C.H. Robinson do not really own the transportation equipment it uses because it is a third-party logistic and freight  company. As the name implied, it is a worldwide company with a market capitalization of $9 billion(Market capitalization is the total dollar market value of all of a company’s outstanding shares). Its mode of  operation  is, at least exquisite: it provides truck, rail, air and ocean freight services  by working in close collaboration with 50,000 transportation companies across the globe. On a more positive side, C.H. Robinson has consistently increased its earnings per share(EPS) each year during the past 10 years; has averaged a 29.7 percent return on equity over the past decade and has no long-term debt(Resee, 2013). Quite a good investment for sure.

Union Pacific Corporation(UNC)

The parent of Union Pacific Railroad(a company which operates in 23 states in the western part of United States), the UNC  is based in Nebraska. The company’s business operation merit special discussion: Its lines connect with Canada’s rail systems and it is the only railroad that serves all six major Mexico gateways. UNC has a market capitalization of $66 billion. Its P/E-to-growth ratio(PEG), obtained by dividing the company’s 17.2 price/earnings ratio by its 22 percent long-term growth rate is 0.79, makes the stock a good buy. In addition, this low P/E-to-growth ratio(PEG) means that the company’s stock is undervalued given its earnings performance. Generally speaking, most investors looks for a PEG  of 1 or below. UNC is equally a conservatively financed firm, with a debt-to-equity ratio of 45 percent. Overall, the company’s stock will be a good addition to an investor’s portfolio.

J.B. Hunt Transport Services(JBHT)

J.B. Hunt is a transportation logistics company which is based in Arkansas, U.S.A. The company has a market capitalization of $8.2 billion. It is very active in the continental U.S., Mexico and Canada. The company’s main business include the transportation of full truckload, containerizable freight. It is equally engaged in another profitable business: It has arrangements with many North American carriers to transport truckload freight in containers and trailers. From an investment standpoint, Hunt’s earnings have increased in all but one year in the past 10 years. The company’s earnings  provides a convincing argument as it its viability: It has enough annual earnings($311 million per year) that could pay off its debts(which stands at $585 million) in less than two years if it needed to. Besides, the company has averaged a 28.3 percent return-on-equity(ROE) over the past decade(Resee, 2013). This high ROE  value means that J.B. Hunt is able to generate cash internally and is doing a good job of using investment funds to generate sufficient earnings growth. The bottom line: the company’s stock is a good buy.

Sources

Reese J.(2013): Top Stocks – Five Guru-Style Transportation Picks. MSN Money. Retrieved April 22, 2013 from http://money.msn.com/top-stocks/post.aspx?post=4ca570e9-045a-4aeb-8996-ce8636657abb

Some Tax Deductions You May Need

Some Tax Deductions You May Need

As we all know, the normal deadline for filling your taxes is April 15(U.S. Government, 2013). If you have not filed your taxes yet, you should take advantage of one important thing about taxes: deductions. According to the available published evidence, Americans claim more than $1 trillion  deductions at tax time(Feldman, 2013). So you might as well  get a piece of that pie while it is on the table, regardless of your opinion with respect to the U.S.  tax code – that is, whether you think  the U.S.  tax code  should have more write-offs  or fewer loopholes. Below  is  a helpful starter list that would help you to grab  every available deductions(including the ones you may not have thought about)  in your 2012 returns.

Taxes on New Cars

There has been a revival of the state sales tax write-off. This revival means that you are now allowed  to choose between  deducting state income taxes or state sales taxes. If you always itemize your deductions and   live in Florida or other states without an income tax, this would be a no-brainer for you. But if you live in high-tax states like California or New York, this option won’t make any sense to you(Feldman, 2013). You will need to check out the IRS online calculator  for more guidance on how to take advantage of this option.

Donations

Keep track of all your donations: monies  you sent to favorite causes,  foods you bought  for homeless shelters, pens you donated to after-school programs, and so on.  You should remember one more thing: you can use software like ItsDeductible from Intuit(the publisher of TurboTax), or the H& R Block’s Deductions Pro to come out with the right value of the donations, say, the  clothes you sent  to Hurricane Sandy victims in 2012. In addition, if you drove your car for charity in 2012, you are allowed to deduct  that too at a current rate of 14 cents per mile(Feldman, 2013).

Student Loans

Here’s an overly simplified  explanation of  how this one works: you can  write off  up to $2,500 a year in student loan interests. Also, though there  are income limitations, you are allowed  to claim it  even if you don’t itemize your deductions. Furthermore, if you paid extra  amount to pay down your student loan faster, you are equally allowed  to deduct the interest portions  of those involuntary payments too.

Medical Costs

Good news: the Internal Revenue Service  has a much more broader and  lenient description  of what constitutes  medical costs than your health insurer probably does. In view of this, most medical expenses are often deductible:  weight loss programs, acupuncture treatments, eye glasses, dental care,  breast pumps and their accessories. Even the travel expenses you incurred to see your doctor is tax deductible(at 23 cents per mile, whether in your car or by a taxi). If you want to see a complete list of the medical expenses that are tax deductible, get a copy  of the IRS’s Publication 502(Feldman, 2013).

There’s a catch though: You can only deduct the amount of medical expenses  that tops 7.5 percent of your adjusted gross income(Feldman, 2013).

Parent’s  Care

If you have kids, you probably is aware of one tax fact: you can count your kids  as dependents(this exemption is worth $3,800) and take the child tax credit($1000 per dependent child under the age of 17).  But have you considered your aging parents (or other relatives) as dependents? You may not realize that but they also count as dependents. However, the rules are tighter in this case: The IRS requires that, to qualify, your parents  must make less than $3800(excluding Social Security income), and you must pay more than half of their bills.

Job-Hunting  Costs

 Be informed that  you can deduct the cost of job hunting: the costs of preparing your resume, travelling to interviews, and outplacement fees. You can also write-off the cost of moving if you take a job at least 50 miles away. Note, however, that job-hunting costs gets lumped into miscellaneous deductions which you can only take when it is above 12 per cent of your adjusted gross income.

Investment Advice

If you invested in stocks, mutual funds, annuity and other financial products, take heart: you can deduct fees paid to financial advisers. You can also deduct the costs of travelling to meet with your financial guru in person as well as the costs of subscriptions for financial publications. The rules are also tight here: you cannot deduct expenses for going to investment seminars and hear get-rich-quick schemes. Sorry about that.

Home Businesses

If you own a home business, you should start to keep track  of your expenses because you can grab bag of deductions: your home office expenses(including  the pro-rated electric bill, homeowner’s insurance and cleaning costs for your home office), health insurance as well as any subscription, books, and conferences which serve to keep your business  financially afloat. Don’t forget to write of the costs of the following immediately: the costs of a new laptop, setting up a new phone system, or the cost of purchasing a big-ticket piece of equipment for your business. It is better to write these costs off immediately rather than depreciating them over time – a different approach that can be extremely valuable even though they may sound ridiculously geeky.

Sources

Feldman A. (2013):  10 Tax Deductions to Keep on Your Radar. Baltimore Sun(Business & Jobs Section), p.4.

U.S. Government(2013): Federal Tax Filling Season. Retrieved April 8, 2013 from http://answers.usa.gov/system/selfservice.controller?CONFIGURATION=1000&PARTITION_ID=1&CMD=VIEW_ARTICLE&ARTICLE_ID=10401