Transportation stocks are becoming an intriguing niche in the markets where investors congregate to try and predict plays on the global supply chain woes.
After the Pandemic started to disrupt global supply networks, the whole system is now being pushed under even greater pressure as a consequence of geopolitical tensions and Russian aggression toward Ukraine.
Shrewd investors liken transportation stocks to the performance of the economy in general. In March the dow Jones Transportation Average jumped in March above other market gauges signaling that both the transportation market and possibly the economy might be moving higher.
Picks for you
For investors searching for potential opportunities to benefit from the supply chain issues, it will pay to keep an eye on these two stocks.
1. Union Pacific Company (NYSE: UNP)
The second-largest U.S. rail network operator growing at a steady clip. Currently, the only part of the supply chain that is operating 24/7 are the railroads and with that comes pricing power which UNP has. In their earnings call, there is mention of a volume decline of 4% but only in the automotive sector which is mostly related to chip shortages.
Volume decline has been offset by their pricing power and fuel surcharge due to oil prices rising. Pricing power is here to stay as it seems especially when the chip shortages with autos get resolved.
The stock itself is performing in line with expectations, trading above the 20-50-200 Simple Moving Averages (SMAs). Continuation of the upward momentum is expected especially if the earnings come in line or slightly above expectations.
Analysts also agree that the stock is a buy with an average price target of $272.83. More bullish analysts have the price at $306, expecting the price to climb another 12% from its current trading price of $272.83.
2. FedEx Corp. (NYSE: FDX)
Air and ground express package delivery services provider grew revenue by 14% and adjusted earnings came in at $4.83 per share. These figures easily beat expectations and the management stated that they are repricing contracts higher.
This indicates that revenues and profitability are bound to increase more in the coming quarters as FedEx reflects shipping limitations and focuses on e-commerce transportation.
The stock is currently trading below its June 2021 highs in a range between the 50 and 200 SMAs. A break above the 200 SMA would be a bullish signal which could start a run-up to the first resistance line around $250.
Analysts are also expecting a lot from the company giving it a strong buy rating with the highest price sitting at $343. The average price is $295.75 giving this stock a potential upside of 25.22% from the current trading price of $236.18. Also Bank of America (NYSE:BAC) likes the stock predicting that it will hit $280 easily.
When the economy is strong transportation stocks tend to follow and perform well. People traveling and companies doing a lot of business favor these stocks and investors rejoice. However, tough economic times tend to hurt the sector dramatically so a dose of cyclicality comes with the territory.
Investors in the sector need to keep an eye on the broader market along with the companies they plan on investing in. This of course is true of most stocks however cyclicality in the transportation sectors seems more pronounced than elsewhere.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
