Transportation stocks have been under duress of late. The Dow Jones Transportation Index is up 5% in the past six months, lagging the S&P 500’s 18% gain. The transportation sphere is typically more sensitive to fuel price hikes, regulatory changes, and other economic conditions. Hence, the savvy investor will want to consider offloading transportation stocks to sell.
Furthermore, despite a positive earnings season for corporate America, many of the transportation bellwethers missed top and bottom-line expectations. Moreover, The Biden administration’s new rule for automatic cash refunds to airline passengers also weighs down the broader transportation space. With that said, here are three transportation stocks to sell, offering little to no upside at least in the near-term.
Transportation Stocks to Sell: Southwest Airlines (LUV)
Southwest Airlines (NYSE:LUV) was a hit with travel-starved customers during the pandemic recovery. Moreover, its low-cost model accelerated its return to pre-pandemic levels. However, the legacy airliner is now under major duress, with rising labor costs and inflationary pressures nibbling away at its bottom-line. Consequently, its profitability margins have dropped in the past few years, lagging behind historical metrics.
Boeing’s production woes are compounding its issues, with the airliner receiving just 20 jets this year instead of the 84 that were initially forecasted. That complicates things for Southwest as it looks to boost its revenue per available seat mile (RASM). Moreover, unlike its peers, it lacks the advantage of premium or international flights to cushion the financial blow.
Thus, we saw a sizable top-and-bottom-line miss in Southwest’s first-quarter (Q1) earnings, reinforcing concerns. While historically a weak quarter, the choppiness in the current business environment paints a rather grim picture for Southwest’s near-term prospects.
JB Hunt (JBHT)
JB Hunt (NASDAQ:JBHT) is a giant in transportation and logistics solutions, facing multiple near-term headwinds. This is shown by its lackluster recent results, which missed estimates on both lines in five out of the past six quarters. Consequently, its stock shed more than 14% year-to-date (YTD), offering little to no near-term upside potential. In fact, in the past three years, JBHT stock is down more than 3%.
Its operating landscape is marked by overcapacity, which has, in turn, intensified pricing pressures. With double-digit excess capacity in the trucking industry, JB will continue facing price suppression, weighing down its bottom-line.
Its Intermodal (IM) segment, in particular, faces the biggest challenge, experiencing a sharp deceleration in volume growth during Q1. With a 0.2% year-over-year (YOY) drop, this trend suggests that JBHT is losing its competitive edge while struggling against aggressive pricing from competitors. Moreover, though its management is concentrating on the bigger picture by expanding its intermodal container fleet, near-term strategies to correct the current slump are insufficient.
ArcBest (ARCB)
ArcBest (NASDAQ:ARCB) is another leading freight transportation and logistics solutions provider. Unlike most of its peers, ARCB stock surged last year, delivering a healthy 34% gain despite the firm’s weak fundamentals. Revenues, profits, and cash flows dipped by sizable margins last year, offering a bleak near-term outlook for its business.
Net income dropped from $298.2 million last year to $195.4 million in 2023, with a sizeable drop in operational cash flows and EBITDA margins. Though it showed some resolve in the fourth-quarter (Q4) last year, with lower operational expenses, the firm’s long-term strategies are unlikely to offer any immediate relief.
The company recently released another disappointing quarterly report in Q1, with sales dropping 3% year over year amidst a softer freight environment. Total daily tonnage fell substantially to 16.8%, while shipments per day were down to 6.2%. Hence, it’s far from being the most attractive transportation pick at this stage.
On the date of publication, Muslim Farooque 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.
