The massive U.S. transportation industry has, according to the U.S. Department of Transportation, a net value of transportation infrastructure and vehicles in excess of $10 trillion. In addition, the value of America’s transportation capital stock is growing by more than 10% a year.
Whether by rail, truck, air, or shipping containers, transportation keeps the American economy moving – literally. The U.S. trucking industry is worth nearly $750 billion with almost a million drivers. Given the sheer size of the sector, investors have options to allocate capital to many transportation stocks.
As investors, we know that some stocks are better bets than others. Many transportation companies are beset by labor issues and high debt levels, and are vulnerable to economic cycles. As always, it pays to be discerning and careful when choosing stocks. So take this sell alert seriously. Let’s examine three transportation stocks to dump now.
Yellow Corp. (YELL)
Common sense says investing in a company on the cusp of a Chapter 11 filing probably isn’t a wise choice. So, our first stock to sell is the trucking firm Yellow (NASDAQ:YELL), which has ceased operations and announced plans to file for bankruptcy. Yellow has been struggling under $1.3 billion of debt and failed to successfully restructure said debt. Part of it is a $700 million pandemic relief loan provided in 2020 by the U.S. in exchange for a 30% stake in the company.
Yellow had been the third-largest U.S. trucking company that specialized in combined shipments from different customers in the same trailer. Its main customers included large retailers such as Walmart (NYSE:WMT) and Home Depot (NYSE:HD). Yellow has reportedly sent notices to customers about the end of its operations, as well as layoff notices to non-unionized staff. Ironically, the demise of this trucking firm has prompted retail investors to move in and execute a short squeeze on YELL stock.
Since Yellow announced plans to cease operations, its share price has been pushed up nearly 450%. Stay away. This is a transportation stock to dump.
Federal Express (FDX)
The second stock to dump is Federal Express (NYSE:FDX). It’s one of the biggest U.S. transportation companies, operating over 85,000 vehicles and 700 aircraft. The company’s business is divided between its shipments by air, ground, and freight transportation. While FedEx shone during the pandemic when its shipping volumes went through the roof, it’s had a tough road over the past few years. The company reported its latest earnings at the end of June, prompting FDX stock to fall 3%.
For its fiscal fourth quarter, FedEx reported a 28% drop in its earnings per share (EPS) to $4.94, while revenue in the period declined 10.2% to $21.9 billion. Analysts polled by FactSet had forecast earnings of $4.85 a share on $22.55 billion of revenue. Perhaps worse, full-year earnings at the company declined 27% to $14.96 per share while revenue decreased 3.5% to $90.2 billion. FedEx’s earnings have now declined an average of 27% in the last three quarters, prompting a sell alert for this transportation stock.
FDX stock is up less than 10% over the past five years, badly trailing the 60% gain in the S&P 500 index during the same timeframe.
Norfolk Southern (NSC)
Our final stock to sell is railway company Norfolk Southern (NYSE:NSC), which has struggled since its tragic train derailment in East Palestine, Ohio this past February 3. The 38-car crash caused a subsequent fire and prompted an evacuation due to the release of extremely hazardous materials. While no fatalities or injuries were reported, the company estimates that the derailment and clean-up costs will be in excess of $800 million. The bad publicity and expense pushed NSC stock down 7% year to date.
The rail operator recently released its Q2 financial results which were predictably bad. EPS of $2.95 was 17 cents below analyst estimates of $3.12. Revenue also came in below expectations at $3 billion versus a forecast of $3.08 billion. The company said it has already incurred about half the cost to clean up the Ohio train derailment, but sees additional costs impacting future results. The accident coupled with the poor financials make NSC a transportation stock to sell.
On the date of publication, Joel Baglole 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.
