In any other time period, those who adopted a contrarian view to making expensive acquisitions — such as a new or used car — amid a heightened retail environment would be correct: just exercise patience and prices will come down. While sensible, it’s turning out to be the wrong advice. As Consumer Affairs reported, used car prices hit a record high in September, posing an interesting scenario for transportation stocks to buy.
Why this sector? As you know, the consequences of the novel coronavirus are not just centered on the health threat. Instead, the economic impact has been devastating to affected businesses and absolutely frustrating for consumers. Regarding the automotive industry, a panicked cancellation of orders in 2020 resulted in a serious backlog for 2021 as critical products supplier attempt to catch up. Cynically, this bodes well for transportation stocks.
Unfortunately, the reality for those who took sensible advice about used cars is that even if the ongoing semiconductor shortage were to disappear overnight, production can’t just turn on for everyone. Simply, producers have to meet demand across the board for industries that use electronics — today, that’s pretty much everyone. What is certain in this terrible mess is that whatever supply is available needs to be delivered ASAP. Naturally, this bodes well for transportation stocks.
Another factor that’s a tailwind for this segment — but a hassle for others — is that the disturbance may last longer than initially anticipated. For instance, in early July of this year, CNBC reported that “Global supply chains have been severely disrupted this year by a slew of issues right as a resurgence in trade and strong demand for commodities meant more goods needed to be moved.” Logically, that’s a plus for transportation stocks.
And the sad reality is that recently, experts are warning that there doesn’t appear to be an end in sight for the supply chain woes. That’s going to put more pressure on the transportation industry, which may be problematic for the workers on the frontlines.
However, it does suggest an opportunity in these transportation stocks to buy:
- Danaos Corporation (NYSE:DAC)
- Navios Maritime Partners (NYSE:NMM)
- Kirby Corporation (NYSE:KEX)
- ZIM Integrated Shipping Services (NYSE:ZIM)
- Union Pacific Corporation (NYSE:UNP)
- J.B. Hunt Transport Services (NASDAQ:JBHT)
- United Parcel Service (NYSE:UPS)
While the narrative seems very positive for transportation stocks, you must also remember that everything centers on economic demand. If global stability becomes an issue, then the supply shortage may not matter much, which then would present problems for the broader logistics industry. Therefore, do your due diligence and keep an eye on the headlines.
Transportation Stocks to Buy: Danaos Corporation (DAC)
As one of the largest independent owners of modern, large-size container ships per its website, Danaos Corporation has responded very well to the doldrums of the Covid-19 pandemic. On a year-to-date basis to the end of the Oct. 8 session, DAC stock is up 233%, a truly staggering performance. Still, some analysts argue that it remains an undervalued play.
Admittedly, I’m not well versed in all the arguments supporting Danaos since my cheap hind end doesn’t like paywalls. Nevertheless, transportation stocks in general may be fundamentally undervalued. That’s because we’re in a situation where the much-hoped-for resolution to the supply chain disruption is becoming an increasingly difficult target to sight.
Speaking about commodity hauling costs, Jan Rindbo, CEO of Danish vessel operator D/S Norden, stated, “Earlier in the year, people thought this was a short-term spike in the market, but now people see it as more structural and longer term.” If that’s the case, you might want to consider adding some transportation stocks like DAC to your portfolio.
However, the recent trading for DAC has been pensive so don’t put all your eggs in one basket.
Navios Maritime Partners (NMM)
A dry cargo shipping company with dry bulk and container vessels, Navios Maritime Partners is a well-known name among transportation stocks. As with other shipping firms, the company was devastated due to the energy-related commodity market collapse in the middle of last decade. Strangely enough, this once-in-a-century pandemic has been the catalyst to turn things around for NMM stock.
On a YTD basis, shares are up 146%, again a staggering tally. Because of the already positive print, investors will want to navigate this and other transportation stocks carefully. Nevertheless, with the headlines suggesting that the supply crunch could last longer than what experts predicted earlier this year, we could see another surge in NMM.
True, riding the headlines is typically not the best approach — markets are driven by rumors and profited off their realization. But maybe, just maybe, this crisis could last into 2023 and beyond. Remember, experts in June of this year suggested that supply chains might head to normal in 2022.
However, the recent print suggests that global delays won’t be easily fixable. Therefore, transportation stocks may have long legs.
Transportation Stocks to Buy: Kirby Corporation (KEX)
If you want transportation stocks that don’t carry a nosebleed of a premium, you should check out Kirby Corporation. Per its website, “Kirby Corporation is the premier tank barge operator in the United States, transporting bulk liquid products throughout the Mississippi River System, on the Gulf Intracoastal Waterway, along all three U.S. Coasts, and in Alaska and Hawaii.”
In addition, “Kirby is also a leading nationwide service provider and distributor of diesel engines, transmissions, parts, industrial equipment and oilfield service equipment.” All of these segments, argued bullish analysts supporting KEX stock last year amid the coronavirus onslaught, facilitated insulation for Kirby. Per an article from WorkBoat:
“With refineries and petrochemical plants reducing utilization rates to align with declining demand, Kirby expects low volume levels to persist until economic activity resumes. However, the long-term nature of many of our inland term contracts and the flexibility of barging in the evolving and complex U.S. supply chain will help to insulate some of the decline in business activity. Opportunities for storage, product relocations, and upcoming lock maintenance projects will also help to mitigate lower demand.”
Today, we’re in an opposite situation, with society eager to get back to normal. With KEX up only 6% YTD, this might be something to consider with speculation funds.
ZIM Integrated Shipping Services (ZIM)
Headquartered in Israel, ZIM Integrated Shipping Services is one of the leading carriers in the global container shipping industry, ranking in the top 20 of global carriers. Primarily, the company operates several fleets while providing multi-modal, cargo handling and tariff management services, among others. Its ability to handle seaborne demand and logistics pressure has seen it soar alongside leaders of transportation stocks.
Since the January opener, ZIM is looking at a hefty return of 287%. It would have been more had it not been for a trailing-month loss of 22%. While the double-digit red ink is worrying in the sense that it implies the market doesn’t believe in the sustained supply crunch, the preponderance of evidence suggests otherwise.
For one thing, this year’s Black Friday shopping holiday could be complicated by the supply disruptions and shortages. It’s not just critical products like cars but also less-essential goods (but still sentimentally important) like video game consoles.
Further, Transportation Secretary Pete Buttigieg suggested that supply chain bottlenecks and disruptions could last for years, which is alarming for anyone not invested in transportation stocks.
Transportation Stocks to Buy: Union Pacific Corporation (UNP)
While the high seas have garnered the most attention regarding global bottlenecks, the freight-hauling railroad industry could also see some impact. And that may bode very well for companies like Union Pacific Corporation. Operating North America’s premier railroad franchise, Union Pacific covers 23 states in the western two-thirds of the U.S., per the company’s website.
Another little tidbit from its website is the response that the domestic transportation provided under an unprecedented baptism of fire. “The COVID-19 pandemic has brought a heightened awareness to the importance of supply chains. With shifts in consumer buying patterns and increased demand for pandemic-related products, supply chain fluidity and faster speed to market are more important than ever. U.S. West Coast ports are helping to accomplish just that.”
Of course, some of the demand from the public health crisis has eased up. Nevertheless, it’s possible that we could see a pandemic-related permanent shift in consumer behaviors. For instance, e-commerce as a percentage of total retail sales amounted to 13.3% in the second quarter of this year, up nearly 17% from Q1 2020 — the quarter when the smelly stuff first hit the fan.
Since online purchases probably won’t decline substantially from here on out, UNP might be a name to consider among transportation stocks.
J.B. Hunt Transport Services (JBHT)
One of North America’s largest freight transportation providers, J.B. Hunt Transport Services offers multi-modal supply chain services and products. Better yet, the company has significant reach, operating in the U.S., Canada and Mexico. JBHT stock has spiked since Oct. 11, with shares up 40% YTD and 14% in the last month.
Unlike competing transportation stocks in the volatile shipping industry, JBHT inspires more confidence on the charts. Following its rapid move higher from the doldrums of 2020, JBHT appears to have entered an upwardly biased consolidation pattern. Given the very real possibility that the supply crunch could last years, the equity unit could swing northbound on cynically positive fundamentals.
Moreover, while J.B. Hunt can’t do anything about the supply shortage itself, there will be demand for products to be shipped quickly and efficiently. That’s where the company’s focus on final mile services has been crucial. Ranging from home and jobsite deliveries to serving the needs of the business community, J.B. Hunt has played an integral role in how our economy functioned during the worst of the Covid-19 pandemic.
While we all want a full return to normal, if the supply situation continues to drag, JBHT may benefit.
Transportation Stocks to Buy: United Parcel Service (UPS)
When the Covid-19 crisis ceased to be a foreign problem and one that eventually became part of our everyday life, United Parcel Service was a clear beneficiary. Following some turbulence during the down period of 2020, UPS quickly skyrocketed, becoming one of the top pandemic winners. But as people became acclimated to the crisis, the narrative for UPS began to dip.
On a YTD basis, shares are still up nearly 15%. However, since hitting a closing record of $217.50 on May 7 of this year, UPS is down around 10%. More recently on a trailing-month basis, shares are up by just 1%. Seemingly, that doesn’t augur well for the equity unit, especially as consumers with cabin fever are out and about, opening their wallets to make up for lost time last year.
While UPS is one the riskier names among transportation stocks, it might also offer some surprises, especially if the supply crunch worsens. Basically, the idea is that consumers may not be able to find all the products they want in physical store locations. Therefore, the e-commerce angle at this stage of the pandemic is still relevant.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.