When selecting the best transportation stocks to buy, investors have to take into account the goods-to-experiences switch that’s occurring in the American and European economies at this point.
As CNBC explained last month, “Shoppers are feeling the pressure as inflation pushes up prices for gas, groceries and a range of other goods and services.” But on the other hand, “Concerts, movies, travel and other experiences people missed during the height of the pandemic are among the industries enjoying strong demand.”
So for the most part, the best transportation stocks to buy are those that will benefit from this goods-to-experiences switch.
But long-term, contrarian investors can also look for transportation names that specialize in transporting goods and also have very low valuations. That’s because eventually the pent-up demand for experiences will be satiated, and consumers will start spending more of their money on goods once again.
With those points in mind, here are the seven best transportation stocks to buy now:
| LUV | Southwest | $40.24 |
| FDX | FedEx | $227.30 |
| JETS | U.S. Global Jets ETF | $17.23 |
| UBER | Uber | $23.30 |
| AUR | Aurora Innovation | $2.39 |
| F | Ford | $12.82 |
| VLKAF | Volkswagen | $191 |
Southwest (LUV)
In addition to benefiting from the goods-to-experiences shift, Southwest (NYSE:LUV) is a discount airlines and has a good reputation. As a result, it should attract many travelers who want to avoid high airfares but still are looking to use an airlines that they trust.
Showing that Southwest is benefiting meaningfully from the pent-up demand for travel, the airlines recently reported that its second-quarter “Revenue is expected to be up 12% to 15% vs. 2019 levels with load factors coming in at 85% to 87%.” Moreover, according to Seeking Alpha, Southwest stated that its “cost headwinds are seen normalizing with [long-term] fuel hedging,” limiting its exposure to high prices.
LUV stock has a reasonable forward price-earnings ratio of 15.8. Additionally, many analysts may be underestimating the extent to which the airline’s profits will be boosted by pent-up demand, so its actual P/E ratio could be much lower.
FedEx (FDX)
Last month, FedEx (NYSE:FDX) issued impressive long-term guidance. Specifically, it expects to raise its operating income, excluding some items, by “$3.0–$4.5 billion in fiscal 2025 vs. fiscal 2022.” Also noteworthy is that the package deliverer is looking for its adjusted earnings per share to increase at a compound annual growth rate of 14%-19% from this year to FY2025.
FDX stock should also become more attractive for income investors, as the firm expects to achieve an “Adjusted dividend payout ratio of at least 25%.” The latter target suggests that the company will seek to meaningfully increase its dividend, which currently stands at $4.60 per year with its payout ratio just over 20%.
And over the longer term, FedEx and FDX stock should benefit significantly from the likely acceleration of e-commerce growth to which I alluded in the introduction to this column.
U.S. Global Jets ETF (JETS)
For investors who want exposure to the airlines’ resurgence without having to pick just one or two names, the U.S. Global Jets ETF (NYSEARCA:JETS) exchange-traded fund is a very good pick.
Among its largest holdings are most of the biggest U.S. airlines, including Delta (NYSE:DAL), United (NASDAQ:UAL), Southwest and American (NASDAQ:AAL). It has smaller stakes in regional airlines, including Alaska Air (NYSE:ALK) and Allegiant Travel (NASDAQ:ALGT).
The airlines should benefit from a, likely, further decline of fuel costs going forward, and within a few months, the sector’s pilot shortage should ease as the airlines raise pilots’ compensation.
Moreover, the largest U.S. airlines, including United, Southwest and Delta, have all reported very strong financial results in recent months.
Uber (UBER)
At the end of May, Bernstein analyst Nikhil Devnani resumed coverage of Uber (NYSE:UBER) stock with an “outperform” rating. The company has issued three positive earnings two of the last three quarters, and it can perform very well in the coming years, driven by its strong positions in the ridesharing and delivery sectors, Devnani wrote. The analyst set a $35 price target on UBER stock.
Uber looks well-positioned to benefit from a “Goldilocks” scenario. Specifically, it should get a lift from pent-up demand for travel and reduced fears about the coronavirus, while the deceleration of global economic growth should increase its ability to hire drivers at reasonable prices.
After sliding 44% (likely mostly due to unwarranted fears about a recession and sky-high interest rates), the trailing price-revenue ratio of UBER stock is just 1.9. Moreover, analysts, on average, expects the company’s per-share loss to shrink to just 7 cents in 2023 from $3.18 this year.
Aurora Innovation (AUR)
As I pointed out in a previous column, Aurora Innovation (NASDAQ:AUR), which specializes in developing autonomous-driving solutions for trucks, has alliances with FedEx and Uber, while Amazon (NASDAQ:AMZN) has “a 5.2% stake in Aurora.”
Aurora is already teaming up with FedEx working toward trucks carrying packages between Dallas and Houston. Among Aurora’s other, impressive partners are Toyota (NYSE:TM) and Volvo.
Also worth noting is that Aurora has developed self-driving technology that is able to “work across multiple vehicle types.” As I asserted before, the system’s “standardization should greatly facilitate the use of Aurora’s system by transportation companies and automakers.”
With the market capitalization of AUR stock down to just $2.8 billion, I believe that the market is greatly underestimating the company’s long-term outlook.
Ford (F)
In a July 9 article, Barron’s noted that Ford’s (NYSE:F) “Lightning, like the Mustang Mach-E crossover and E-Transit van, launched to glowing reviews,” while Ford is on track to become the second-largest electric vehicle maker in the nation, behind, of course, Tesla (NASDAQ:TSLA).
Over the long term, I still expect General Motors (NYSE:GM) to at least catch Ford in the EV race — and surpass Ford when it comes to autonomous driving. But Ford has the lead over GM in EVs now, and first-mover advantage is important.
And of course, many investors want big profits in six months or a year. They don’t want to wait a year or two to see a large return on their money.
Encouragingly, Ford’s sales climbed 31.5% in June, compared with May, indicating that its supply-chain issues are starting to significantly ease.
And showing that Ford is upbeat on its long-term outlook, the company intends “to invest $3.7 billion and add more than 6,200 new union manufacturing jobs in Michigan, Ohio and Missouri.”
The forward P/E ratio of F stock is just 6.1.
Volkswagen (VLKAF)
European automaker Volkswagen (OTCMKTS:VLKAF) will sell as many EVs as Tesla in just 18 months, Bloomberg Intelligence recently predicted.
The automaker’s CEO in July said that it would deliver EVs more quickly later on in the year.
In Q1, the company’s EV sales jumped an incredible 65% YOY to nearly 100,000 vehicles. In April, the automaker reported that it had a backlog of 300,000 EVs.
“We are counting on additional highly attractive models and a successive improvement of the semiconductor situation to provide additional tailwind as the year progresses,” Hildegard Wortmann, a Volkswagen sales executive said.
The forward P/E ratio of VLKAF stock is just over 5x.
On the date of publication, Larry Ramer 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.
