Freight Scene Is Picking Up: 3 Transportation Stocks In Focus

Even though the last month’s reading displayed year-over-year growth, the gradual recovery in the freight scenario can be gauged from the fact that shipment volumes have been displaying an uptick on a month-over-month basis over the past few months. Evidently, the metric improved 1.6% in May from April levels. Readings in June, July, August, September, and October improved 3.5%, 4.8%, 8%, 7.1%, and 0.3%, respectively, month over month.

Union Pacific’s commentary at the Stephens Annual Investment Conference earlier in the month bears testimony to the improved scenario with respect to overall volumes. Management stated that overall volumes for the December quarter are up 3% through Nov 11. Overall volumes rose on strength in the premium segment (up 11%).

This resurgence in the freight scenario can be attributed to healthy consumer spending with US retail sales on the rise. Notably, retail sales increased 5.2% year over year in October 2020. Improvement on a year-over-year basis with respect to rail volumes was also witnessed in the month. Per the Association of American Railroads’ report, total U.S. rail traffic in October this year was 2,082,646 carloads and intermodal units, up 2% from the October reading last year.

Moreover, for the third quarter of 2020, U.S. real GDP increased at an annual rate of 33.1%, per the "second" estimate released by the Bureau of Economic Analysis. This marks a rebound from a 31.4% plunge in the second quarter. With the domestic economy gaining an impetus, freight activity is naturally boosted.

3 Stocks to Focus on

With the U.S. economy on the mend, courtesy of tailwinds like a ramp-up in the industrial activity, the freight scenario is looking up. To leverage this brighter scenario, we present three companies that investors should watch out for.

Knight-Swift Transportation Holdings (KNX - Free Report): This Phoenix, AZ-based provider of multiple truckload transportation and logistics services currently sports a Zacks Rank #1 (Strong Buy). The company recently gave an upbeat earnings per share outlook for 2020.

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