Transportation stocks are typically viewed as moving in sync with the economy as a whole. Despite what the very stubborn bears say, I would argue that this characteristic makes transportation stocks very attractive at the current time, as the Fed projects that the U.S. economy will grow at an extremely rapid 4.9% in the current quarter. (One of my favorite expressions is “Don’t fight the Fed’s GDP projections”).
Moreover, as you’ll see below, while some transportation stocks will, of course, be hurt by high oil prices, other names will be helped by the phenomenon. Also noteworthy is that a meaningful portion of transportation companies will be boosted by Washington’s current initiatives, while many names in the sector are extremely undervalued.
Here are three very well-positioned, inexpensive transportation stocks to buy for medium-term and long-term investors.
Wabtec (WAB)
Wabtec (NYSE:WAB) provides locomotives, along with many other parts for trains. The company says that it sells products to “almost every major rail transit system in the world.”
With oil prices high, many countries are likely to expand their use of both passenger and freight trains. That trend will, of course, be positive for Wabtec and WAB stock. Additionally, with a multitude of governments mandating that many more electric vehicles be sold, the utilization of passenger trains is likely to jump, since EVs tend to be quite expensive, and many consumers will not be able to afford them.
Further, Congress approved $66 billion of new funding for trains within the Bipartisan Infrastructure Law. Wabtec has historically won major deals from contractors that serve Amtrak, so WAB is likely to benefit from the funding.
Another one of WAB’s U.S. partners, Brightline, a private company, is building a new train line connecting Las Vegas to Southern California and is likely to benefit from the Bipartisan Infrastructure Law.
Finally, Barron expects WAB to sell more safety equipment in the wake of the tragic derailment of a train in Ohio in February.
Canadian Pacific Kansas City (CP)
Citi (NYSE:C) recently started coverage of railroad operator Canadian Pacific Kansas City (NYSE:CP) with a “Buy-equivalent (rating) and…a $90 price target.”
The bank contends that “CP is uniquely positioned for growth over the long term, with competitive access to key markets in both Canada and the U.S., including ports on both the east and west coast.” Moreover, the firm thinks that CP’s upcoming merger with Kansas Southern will boost the company’s network and enable it to reduce its costs.
CP will also likely be helped by higher oil prices, as the latter phenomenon tends to significantly boost the Canadian economy, given the country’s big oil-drilling business.
Analysts, on average, expect CP’s earnings per share to climb to $3.47 next year from $2.67 in 2022. CP stock is changing hands at a reasonable forward price-earnings ratio of 21.5.
J.B. Hunt Transport (JBHT)
Trucking company JB Hunt (NASDAQ:JBHT) recently predicted that it could increase the number of containers that it hauls by as many as 150,000 containers by 2027. The company also expects to benefit from cost-cutting and increased demand for its intermodal services.
The demand for intermodal, which accounts for 48% of JBHT’s revenue, should be strong since it uses much less fuel than trucks.
Further, I believe that the firm, like all trucking companies, is well-positioned to benefit from the current rebound of the e-commerce sector. Analysts, on average, expect JBHT’s earnings per share to climb to $9.06 in 2024 from $7.70 in 2023.
The shares are changing hands at a reasonable forward price-earnings ratio of 20.7.
On the date of publication, Larry Ramer did not hold (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.
