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