Although broader market indices such as the S&P 500 index or the Dow Jones Industrial Average are considered the ultimate benchmarks, it’s transportation stocks that are the true economic bellwether. After all, if companies aren’t shipping products across our great nation, our economy is literally stagnant. In fact, the Dow Jones Transportation Average is the oldest stock market index in use today.
Created in 1884, the index covered transportation stocks for more than a decade before the DJIA materialized. If the sector was so important back then, it stands to reason that it’s at least as important today. Sure, technology has dramatically changed over the past 130-plus years. But until we get to Star Trek-level advancements, people still require physical shipping of goods.
If history is any indicator, things are looking bright for transportation stocks, many which have suffered volatile trading. First and foremost, the optimism is catalyzed by the very top. President Trump ran on the ticket of restoring America’s infrastructure. Nothing could be more “Murica” than trucking.
But it’s not just empty rhetoric. Transportation stocks rapidly surged when the former real estate mogul unexpectedly took the White House. Not only that, President Trump is sitting on an unheralded record. Going back to at least the 1990s, no other Commander-in-chief has produced as much gains for transportation stocks between election day and the end of that particular year.
By the numbers, the current administration “produced” 8.6% gains in the DJTA. President Obama only mustered a pedestrian 2% in 2012 and a decline of 13% in 2008, due to the financial collapse. President George W. Bush averaged 6.5% in his two terms, while President Clinton averaged 5% even.
So for all the criticisms against today’s state of affairs, transportation stocks are definitely not complaining. Here are three sector names that you will want to buy before they take off!
Transportation Stocks to Buy: Swift Transportation Co (SWFT)
At the start of the second week in April, Swift announced that it was merging with Knight Transportation (NYSE:KNX). Under the terms of the deal, SWFT shareholders will own 54% of the new entity. KNX shareholders, in turn, will own 46%.
As expected, both stocks quickly shot skyward on that day, with Swift gaining nearly 24% in the markets. The announcement immediately brought the trucking company to parity for the year. Earlier, concerns about how the President Trump administration will work with lawmakers — considering the unprecedented vitriol during the election cycle — weighed heavily on SWFT and many other transportation stocks.
Despite the naturally impulsive enthusiasm for the merger, investors should still take a long look at Swift stock. Swift management has focused heavily on cleaning up its financials. In particular, they’re becoming a more cost-conscious entity, reducing business expenses wherever they can. Furthermore, SWFT has done an excellent job reducing its long-term debt exposure. These efforts should go a long way in starting off the new Swift-Knight entity on the right foot.
Finally, the spike up in SWFT stock is a one-off event. It’s the potential moving forward that should really get engines revving.
Transportation Stocks to Buy: J B Hunt Transport Services Inc (JBHT)
Click to Enlarge While mergers obviously impact the directly affected parties the most, a positive ripple effect can occur within the industry. J B Hunt Transport Services Inc (NASDAQ:JBHT) saw that first hand on April 10 following the Swift-Knight announcement.
For the day, JBHT was lifted nearly 2% on fairly high volume. Much of the enthusiasm likely had to do with a less crowded environment for transportation stocks.
But there’s something else brewing on the horizon that makes JBHT an intriguing opportunity. According to data published by the U.S. Federal Reserve, the jobs market for truckers is experiencing a renaissance. Since at least January of 1990, we’ve never had as many truckers hitting the road as we do right now.
This is where the rubber truly meets the road. It’s one thing to make great speeches about the trucking industry when you’re on the campaign trail. It’s quite another when the affected companies actually buy into the story. For JBHT and other major carriers, they’re jumping on board the “Trump train” without any hesitation.
If the trend continues — political and economic indicators suggest that it will — JBHT is in a fine position. The company is well above the industry median for key profitability metrics. In addition, it leads most other transportation stocks on returns on equity and assets. Best of all, J B Hunt is finding ways to grow the top line.
Transportation Stocks to Buy: Marten Transport, Ltd (MRTN)
MRTN stock actually owns the distinction of being in the black on a year-to-date basis, up 6.4%. This is a fairly decent start for a trucking company.
But based on the convergence of multiple tailwinds for the transportation industry, MRTN is primed to benefit even further.
For starters, the longer-term technicals are solid. From mid-January of 2016, MRTN has charted a strong bullish trend channel. True, it’s not the most steady of channels — Marten took scary spills in October and December of last year. Each time, though, it has staged a recovery rally. More importantly, the bottom of the channel has yet to break down decisively. Until that happens, investors can remain confident in Marten.
The company’s fundamentals aren’t particularly sexy. That said, MRTN is stable where it counts. It has solid profitability margins compared to other transportation stocks. Its debt level is also relatively low against the industry. Like J B Hunt, Marten is finding ways to grow sales while maintaining tight financial controls.
Ultimately, MRTN and the rest of the competition will benefit from the hard times it recently experienced. The transportation industry is akin to shale gas and independent energy companies — the best find ways to survive. Of those remaining, investors have a higher probability of picking true winners.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.