Transportation stocks with “buy” ratings
Airline and cruise stocks have been crushed in 2020 because of travel restrictions, event cancellations and shelter-in-place orders. However, the global travel slowdown won’t last forever, and travel demand is already showing signs of rebounding in the right direction. As the economy recovers, airline, railroad, trucking and logistics companies that move both people and goods could heat up again. Analysts say that now is a great time for long-term investors to find some excellent entry points in transportation stocks before the economic recovery. Here are seven transportation stocks to buy, according to the CFRA analyst team.
Canadian Pacific Railway (ticker: CP)
Canadian Pacific Railway serves a 13,800-mile rail network throughout Canada and the northeastern quarter of the U.S. Analyst Colin Scarola says Canadian Pacific’s recent margin trends are impressive, and rail infrastructure stocks will likely outperform the broad economy during the recovery. Canadian Pacific not only has exposure to noncyclical agricultural freight but also carries chemicals and raw plastics needed for products used to fight the global health crisis, Scarola says. He says train-lengthening initiatives are also helping the company to become more cost-efficient. CFRA has a “buy” rating and $298 price target for CP stock.
CSX Corp. (CSX)
CSX provides rail freight service over a network that includes 21,000 miles of track and operates 40 terminals across the eastern U.S. and Canada. Like Canadian Pacific, CSX should benefit from the essential nature of freight transportation even while much of the economy is not at full capacity, Scarola says. Rail services are also less expensive than trucking as customers are looking to cut transportation costs. Scarola says CSX had the best margins of any U.S. railroad in 2019. CFRA has a “buy” rating and $78 price target for CSX stock.
Southwest Airlines (LUV)
Scarola made a bold move this month by upgrading U.S. airline giant Southwest Airlines from “hold” to “buy.” He says the airline’s earnings per share will rebound to $2.96 by 2022 and continue to recover in subsequent years. Southwest has been the most aggressive of all the major U.S. airlines in bringing back flight capacity since April. A decline in U.S. coronavirus cases or a viable vaccine are bullish near-term catalysts. In the meantime, Scarola says Southwest has the healthiest balance sheet of all the “big four” U.S. airlines. CFRA has a “buy” rating and $42 price target for LUV stock.
Uber Technologies (UBER)
Ride-hailing leader Uber Technologies has had an extremely volatile year in 2020. The latest market-moving headline came in early August, when Uber said it may be forced to suspend service in California because of a court ruling that could reclassify drivers as employees. Despite the uncertainty in California, analyst Angelo Zino says cost-cutting measures during the downturn could set the stage for a profitable 2021, even if total trips decline significantly. CFRA has a “buy” rating and $36 price target for UBER stock.
United Parcel Service (UPS)
The delivery business is one of few areas of the economy that has thrived in the shelter-in-place environment, and UPS shares are up 39% year to date as a result. Scarola says UPS is well-positioned to expand its margins in the coming years, increasing profitability. In the second quarter, UPS’ domestic package business — accounting for nearly two-thirds of all revenue — saw a 23% increase in package volume, with more than 21 million packages a day. Scarola says a large part of UPS’ elevated business-to-consumer demand will remain, even after the health crisis. CFRA has a “buy” rating and $177 price target for UPS stock.
Kansas City Southern (KSU)
Missouri-based Kansas City Southern provides service for a 6,000-mile-plus rail network in the U.S. and Mexico. Scarola says Kansas City Southern’s network is a critical link between Midwestern farms, Gulf Coast industries and the rest of the U.S. The company’s Mexico operations, which account for a large portion of KSU’s total revenue, also differentiate it from peers. Chemicals and agriculture make up a combined 45% of Kansas City Southern’s business, and Scarola says both industries should remain resilient in the second half of 2020. CFRA has a “buy” rating and $178 price target for KSU stock.
Landstar System (LSTR)
Landstar System provides trucking transportation logistics services. Scarola says Landstar’s low debt level and asset-light business model make it one of the best defensive trucking stocks. By outsourcing most of its services, Landstar avoids the high costs of owning and operating equipment. Other trucking companies are burning through cash and piling on debt, but Landstar has reported 20 consecutive years of positive free cash flow, Scarola says. He is forecasting an 11% drop in revenue in 2020 but says sales should recover to 2019 levels by 2021. CFRA has a “buy” rating and $137 price target for LSTR stock.
Best transportation stock to invest in:
Canadian Pacific Railway (CP)
CSX Corp. (CSX)
Southwest Airlines (LUV)
Uber Technologies (UBER)
United Parcel Service (UPS)
Kansas City Southern (KSU)
Landstar System (LSTR)
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7 Best Transportation Stocks to Invest In originally appeared on usnews.com
