The transportation sector is critical for GDP growth and global supply chain. The broad sector includes airline, shipping, railroad, trucking and logistics. Amidst the novel coronavirus pandemic, many transportation stocks have witnessed headwinds.
However, there are several names in the space with robust fundamentals, high dividend payouts and are trading at attractive valuations.
We’ll discuss four transportation stocks that are worth considering at current levels. Beyond the current crisis, these transportation stocks can be potential value creators.
- Costamare (NYSE:CMRE)
- Union Pacific (NYSE:UNP)
- United Parcel Service (NYSE:UPS)
- JetBlue Airways (NASDAQ:JBLU)
Transportation Stocks to Buy: Costamare (CMRE)
Costamare is one of the largest independent owners of containerships. Currently, the company has a fleet of 75 vessels that includes five vessels under construction.
Among the smaller names in the transportation industry, CMRE stock is attractive for several reasons. The stock offers a dividend payout of 40 cents per share, which translates into a dividend yield of 8.1%.
The dividend payout is sustainable considering the fact that Costamare has a current order backlog of $2.1 billion with a time charter duration of 3.4 years. This provides clear cash flow visibility.
It’s worth noting that for the first quarter of 2020, the company’s net-debt-adjusted EBITDA ratio was 3.4. However, with the EBITDA-interest-coverage ratio for the same period at 4.9, debt servicing is not a concern.
From a macro-economic perspective, China is gradually crawling back to normalcy and this will trigger higher demand from the containership industry. While demand will still be impacted due to the novel coronavirus pandemic, seaborne trade growth has been steady in the last decade.
Overall, CMRE stock is attractive at a price-earnings-ratio of 5.1. Given the dividend yield, fundamentals and long-term outlook, I believe that the stock is worth considering for the portfolio.
Union Pacific (UNP)
Union Pacific is in the railroad business with presence in 23 states in the U.S. UNP stock has been largely sideways in the current year and I see this as a good accumulation opportunity.
For dividend investors, UNP stock is worth considering with a dividend payout of $3.70 and a current yield of 2.1%. The company’s robust operating cash flows is likely to ensure that dividends sustain and grow in the coming years.
From a business perspective, Union Pacific is critical to the supply chain. The company’s product transportation includes bulk, industrial and premium products. It’s worth noting that the company has been increasing the train length on a consistent basis. This will translate into higher margins and cash flows.
The company’s transportation volume will be impacted in the year due to the pandemic. However, transportation of essentials like food, beverage, grains and fertilizer will see a relatively low negative impact.
Importantly, Union Pacific has strong fundamentals with a cash buffer of $2 billion and a stress-free balance sheet. The company is therefore well positioned to navigate the crisis.
United Parcel Service (UPS)
UPS stock had touched a low of $82 during the coronavirus triggered market meltdown. The stock is currently higher by 45% at $118.7. I believe that the positive momentum for the stock is likely to sustain in the coming quarters.
United Parcel Service would also qualify in my list of quality dividend stocks. The stock offers a dividend of $3.84 and a current dividend yield of 3.2%. However, that’s not the only reason to be bullish on the stock.
In response to the pandemic, the company has been focused on keeping the critical health care and other supply chain moving. The focus on essentials is likely to ensure that the company’s business is not significantly impacted.
At the same time, the shift in consumer shopping behavior has been dramatic. As more people prefer online shopping, UPS is likely to benefit from the positive e-commerce trend.
FedEx (NYSE:FDX) topped Q2 2020 earnings expectations and that sent the stock higher. With United Parcel Service to report earnings later this month, it’s likely that the company will deliver a positive surprise.
From a balance sheet perspective, the company has suspended buybacks and reduced capital expenditure for the year. This will help in cash conservation. Further, the company reported free cash flow of $1.6 billion in the first quarter. Healthy cash flows will ensure that dividends sustain.
JetBlue Airways (JBLU)
Airline stocks have been among the worst hit after the novel coronavirus pandemic. The coming quarters is about survival than growth. JBLU stock is among the attractive names in the industry.
Last month, the stock had touched a high of $15.59 and has corrected to $10.80. I believe that this correction is a good buying opportunity.
From a liquidity perspective, the company reported $1.8 billion in cash and equivalents as of the first quarter. However, in its last quarterly report, the company expected liquidity ramp-up to $3.1 billion by April 2020.
It’s worth noting that the company expects cash burn to be below $10 million per day. Given the current liquidity, the company is positioned to navigate the next few quarters.
Another reason to like the stock is the fact that the company has a relatively low debt-capital-ratio of 44%. This gives financial headroom to leverage if demand remains subdued in the coming quarters.
Overall, JetBlue is among the smaller names in the industry, but looks attractive from a financial perspective. JBLU stock is worth considering with a long-term investment horizon.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock-specific articles with focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.
