It is a well-documented fact that the transportation sector is one of the worst-affected corners of the investment world that bore a massive brunt of the coronavirus pandemic. The space, which includes airlines, railroads, truckers, shippers, and package delivery companies to name a few, is dealt a body blow by factors like declining air-travel demand and low shipment volumes.

Despite the above-mentioned negatives, there are a few favorable factors prevalent in this sector.

Delving Deeper

The uptick in demand for e-commerce — the method of buying and selling goods and services via a software platform — in the current scenario is a huge positive, particularly for the package delivery companies in the sector like FedEx Corporation (FDX - Free Report) and United Parcel Service (UPS - Free Report). With the pandemic largely restricting people to their homes, consumers are placing orders more online. Naturally, the need for door-to-door delivery of essentials is rising in the current scenario.

Moreover, the focus of airlines on operating cargo-only flights in the current environment of weak passenger revenues is praiseworthy. With many passenger airlines (usually carrying freight as well as passenger luggage) presently shrinking their fleets due to tepid air-travel demand, cargo carriers like UPS Airlines are making hay and flying a lot of packages. The upbeat air-freight market is very encouraging for sector participants like Expeditors International of Washington (EXPD - Free Report).

Moreover, with the gradual re-opening of economies and the subsequent easing of restrictions on activities, the scenario got brighter for the sector participants. For example, freight demand is seen improving steadily. Evidently, per the latest Cass Freight Shipments Index report, shipment volumes rose 8% in August from the July levels. The scenario with respect to rail traffic also bettered in the United States, thereby benefiting the railroads. Evidently, carloads jumped 24.7% in September from the August reading. The picture pertaining to intermodal volumes is very rosy as well with John T. Gray, senior vice president of the Association of American Railroads, stating that “September 2020 was the fourth-best intermodal month in history for U.S. railroads”.

Moreover, fuel prices are still below the year-ago levels despite the recent uptrend. As fuel expenses are significant for transportation stocks, low fuel prices bode well for the sector.

Q3 Results Likely to Get a Boost

The above-mentioned tailwinds coupled with the rebounding scenario augur well for the transportation stocks, especially with the third-quarter 2020 earnings season being round the corner.

The sunny prospects can be gauged from the fact that the Zacks Transportation sector gained 20.4% in the July-September period, comprehensively outperforming the S&P 500 Index’s 7.9% gain.

Given this upbeat backdrop, we believe, investors should add transportation stocks, representing lucrative investment opportunities, to their respective portfolios now. We thus selected four stocks that currently have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and bullish September-quarter earnings estimate revisions. Moreover, all have a Momentum Score of A or B, reflecting their short-term attractiveness.

Our first choice is Old Dominion Freight Line (ODFL - Free Report), a leading LTL (Less-Than-Truckload) company. The company based in Thomasville, NC has a Zacks Rank of 1 and a Momentum Score of B, presently. The company is benefiting from the improved freight scenario and cost-cutting efforts. The stock has seen the Zacks Consensus Estimate for third-quarter earnings being revised 22.5% upward over the past 90 days. Old Dominion is scheduled to release third-quarter results on Oct 27.

Our next selection is Atlanta-domiciled UPS. The exponential e-commerce growth rate in the current scenario is a huge plus for this currently Zacks Rank #2 company. The stock, carrying a Momentum Score of B, has seen the Zacks Consensus Estimate for third-quarter earnings being revised 24.3% upward over the past 90 days. UPS is scheduled to release third-quarter results on Oct 28.

The Seattle, WA-headquartered freight forwarding company Expeditors also features on our list. The stock currently has a Zacks Rank of 2 and a Momentum Score of A. The company is benefiting from the stellar performance of its Airfreight Services unit. The stock has seen the Zacks Consensus Estimate for third-quarter earnings move 14.5% north over the past 90 days. Expeditors is scheduled to release third-quarter results on Nov 3.

Our final choice is the Minnesota-based freight broker C.H. Robinson Worldwide (CHRW - Free Report). The stock is currently Zacks #2 Ranked and has a Momentum Score of A. The company is being aided by the recovery in the freight market. The stock has seen the Zacks Consensus Estimate for third-quarter earnings move 22.8% north over the past 90 days. C.H. Robinson is scheduled to release third-quarter results on Oct 27.