Transports — 3 Trucking Stocks to Buy

Advertisement

Transports have been surging in recent months as fuel prices have plummeted. Because fuel is one of the biggest costs for transports, it makes sense that the sector — particularly trucking stocks — would rally on cheap gas prices. Still, the trucking industry faces significant — and perhaps surprising — headwinds, so it pays to be choosy.

Backside of JB Hunt truck 630

Virtually all transports have benefited from low fuel prices, but because nearly 70% of all U.S. freight moves by truck, it makes sense to break down trucking stocks. Plummeting crude oil prices have helped drive diesel fuel down to the lowest level since 2011 — and weekly prices are likely to continue moving lower.

But as counterintuitive as it seems, lower fuel prices are not necessarily a boon for trucking companies.

Here’s why: Trucking companies usually charge their shipping customers a fuel surcharge on top of their normal freight rates — and motor carriers have come to rely on those surcharges as if they were a rate increase. Typically, trucking companies’ fuel surcharges are automatically recalculated on a weekly or monthly basis, based on the real cost of fuel. But extreme volatility in fuel prices can wreak short-term havoc on trucking company revenues.

Keeping those challenges and contradictions in mind, here are three trucking stocks to buy.

Transports Stocks — JB Hunt (JBHT)

yrc-worldwide-185YTD Performance: 5.9%
Current Dividend Yield: 1%

Cheap gas prices have been a challenge for JB Hunt (JBHT) recently, since the company’s stellar fuel surcharge program has helped boost revenues and sustain moderate earnings growth since the end of the Great Recession. The impact of cheap diesel on JBHT’s revenues and margins is likely to remain a factor in the next couple of quarters.

Even so, JBHT is posting growth in other areas that should mitigate fuel surcharge headaches: intermodal freight and supply chain solutions. JBHT’s intermodal transports business (which is containerized freight that can move by sea, rail, air or land) gained more than 8% in the most recent quarter, and the motor carrier is expanding its infrastructure to support additional growth.

JB Hunt is one of the strongest players in the transports sector, and management has done a good job of managing costs through challenging times.

Transports Stocks — C.H. Robinson (CHRW)

C.H. Robinson Worldwide (NASDAQ:CHRW)YTD Performance: 28%
Current Dividend Yield: 1.9%

For trucking companies like C.H. Robinson (CHRW), intermodal freight growth is an increasingly important revenue stream.  However, the increase in containerized freight that can travel via ship, rail or truck pits motor carriers against major railroads like CSX (CSX) and Union Pacific (UNP) that can move a ton of freight more than 460 miles on a single gallon of diesel fuel.

CHRW is fighting back by boosting its profile in intermodal transports — including this week’s announcement that it would acquire Internet freight brokerage Freightquote.com for $365 million. Another attractive benefit for CHRW: Freightquote has a customer base of 80,000 shippers — particularly in the small business market.

Third-party logistics have been a strength for CHRW, and the carrier is looking to deliver one-stop solutions for its freight forwarding customers. The new direction is a good bet for the motor carrier, particularly since costs are rising in the Less Than Truckload (LTL) transports space.

Transports Stocks — YRC Worldwide (YRCW)

yrc-worldwide-185YTD Performance: 44%
Current Dividend Yield: N/A

YRC Worldwide (YRCW) has a strong position in the LTL market, and its network upgrades have helped drive stronger earnings over the past couple of quarters. Still, an acute driver shortage and burdensome government regulations like the Hours of Service (HOS) restrictions could weigh on future margins and revenue growth.

While YRC has battled back from the Great Recession, the company is struggling mightily with labor issues that range from the universal driver shortage to higher than expected costs. Trucking companies are short about 35,000 drivers right now, according to the American Trucking Assn. If not addressed now, that shortfall could grow to nearly a quarter-million over the next five years.

Despite the headwinds, YRC could be a good buy now if you don’t mind volatility. YRC is in negotiations with the International Brotherhood of Teamsters over concessions that will help reduce its debt and position the motor carrier for growth. YRCW also has the transports sector’s smallest price-to-earnings-growth (PEG) ratio — a mere 0.13 — suggesting that the stock might still be undervalued.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/12/transports-gas-prices/.

©2024 InvestorPlace Media, LLC