Since the global economic meltdown of 2008, most investors
haven't expected much from the economy, and that doesn't seem to be
changing. For many, if not most analysts and pundits, the best-case
scenario for the U.S. involves "average" growth in coming years;
more likely scenarios involve prolonged "tepid" growth; and
downside scenarios involve complete and utter financial
Given all of the economic concerns, you might not expect the
transportation sector -- which tends to move in step with the
broader economy -- to be a place to find good investments. But the
economy has done a bit better than expected since the recession
ended in mid-2009, and many transportation companies have fared
quite well. In fact, the Railroad and Trucking industries are
number one and number two on my Validea Growth Index, which ranks
industries based on the growth characteristics of the companies
And, while these industries have been producing some strong
growth in recent years, the economic doom and gloom talk has kept
many of their valuations at very reasonable levels. Investors have
begun to warm to them, with railroad stocks up about 15% so far in
2013, and trucking stocks up more than 18%, according to
Morningstar.com. My Guru Strategies, each of which is based on the
approach of a different investing great, are finding a number of
transportation stocks that look like they still have a lot more
room to run. Here are a handful that are near the top of the list.
As with any quantitative screening approach, you should invest in
stocks like these within the context of a well diversified
portfolio to limit stock-specific risk.
C.H. Robinson Worldwide (
Robinson ($9.6 billion market cap) is a worldwide third-party
logistics and freight company, meaning that it doesn't own the
transportation equipment it uses. It instead works with close to
50,000 transportation companies around the globe to provide truck,
rail, air, and ocean freight services.
The Minnesota-based company is a favorite of my Warren
Buffett-based model. A few reasons: It has upped EPS in each year
of the past decade; has no long-term debt; and has averaged a 29.7%
return on equity over the past ten years.
Union Pacific Corporation (
This Nebraska-based company is the parent of Union Pacific
Railroad, which operates in 23 states in the western two-thirds of
the U.S. Its lines connect with Canada's rail systems and the firm
is the only railroad serving all six major Mexico gateways.
Union Pacific ($66 billion market cap) gets strong interest from
my Peter Lynch-based model. Lynch famously used the P/E-to-Growth
ratio to find bargain-priced growth stocks, and when we divide
Union Pacific's 17.1 price/earnings ratio by its 22% long-term
growth rate (I use an average of the three-, four-, and five-year
earnings per share growth rates to determine a long-term rate), we
get a P/E/G of 0.78. That comes in under this model's 1.0 upper
limit, a good sign.
Lynch also liked conservatively financed firms, and the model I
base on his writings targets companies with debt/equity ratios less
than 80%. UNP's 45% D/E is thus another good sign.
J.B. Hunt Transport Services (
Arkansas-based Hunt ($8.6 billion market cap) is a transportation
logistics company active in the continental U.S., Canada, and
Mexico. Its offerings include transportation of full truckload
containerizable freight, and it also has arrangements with many
North American rail carriers to transport truckload freight in
containers and trailers.
Hunt's earnings have increased in all but one year of the past
decade; it has enough annual earnings ($311 million) that it could
pay off its debt ($585 million) in less than two years if it needed
to; and it has averaged a 28.3% ROE over the past decade. All of
that earns it high marks from my Buffett-based model.
Kansas City Southern (
This Kansas City-based rail firm is a holding company that has
railroad investments in the U.S., Mexico and Panama. In the U.S.,
its main holding is The Kansas City Southern Railway Company; its
primary international holdings include Kansas City Southern de
Mexico, S.A. de C.V. and a 50% interest in Panama Canal Railway
Kansas City Southern ($11.8 billion market cap) is another
favorite of my Lynch-based model. While its shares may look pricey,
trading for 31.3 times trailing 12-month earnings, the firm has
been producing the kind of growth that justifies that valuation. It
has grown the EPS at a 37.2% rate over the long haul, making for a
solid 0.84 P/E-to-Growth ratio. In addition, the firm has
reasonable debt, with a debt/equity ratio of 52%.
Saia, Inc. (
This Georgia-based transportation company offers a range of
less-than-truckload, non-asset truckload, and logistic services. It
operates 147 terminals in 34 states, and has 8,000 employees across
Saia ($600 million market cap) has taken in more than $1 billion
in sales over the past year. It gets strong interest from my James
O'Shaughnessy-based strategy. The model looks for firms that have
upped earnings per share in each year of the past five-year period,
which Saia has done. The model also looks for a key combination of
variables: a high relative strength, which is a sign the market is
embracing the stock, and a low price/sales ratio, which is a sign
it hasn't gotten too pricey. Saia has a red hot 12-month relative
strength of 94, but its P/S ratio remains a bargain-priced 0.54, so
it passes with flying colors.
I'm long CHRW and SAIA.