Trucking Industry Races Ahead on Freight Demand: 4 Top Bets

The trucking industry has been going strong since last year on the back of a robust economy, leading to a surge in freight demand. As truck transportation is a derived demand industry, a rise in demand for freight causes an increase in demand for trucks. Essentially, trucks account for nearly 70% of freight transportation in the United States. Thus, it can be aptly said that an increase in freight demand will most certainly trigger a demand for trucks.

In the wake of high shipping demand, truckers are able to quote higher prices for their services. Even though the upbeat freight scenario has been aiding all types of carriers, trucking companies seem to be reaping maximum benefits from it. Quite ironically, the major shortcoming of capacity constraints in the industry arising from a dearth of drivers turned in its favor, perhaps due to the popularity of trucks for transporting freight. With freight volumes rising, the ongoing restraint on the truck count is pushing up the already high trucking rates.

ELD Mandates Spurring Trucking Rates

The U.S. federal government has made it mandatory for all motor vehicles to be equipped with Electronic Logging Devices (ELD). The ELDs replace the older version of paper log books maintained to record driving hours, with automatic tracking of miles traveled. The mandate caters to the welfare of truck drivers as it limits truckers to work for only 11 hours within a 14-hour workday. This lessens fatigue among drivers, enabling them to remain alert especially on long-haul journeys. This in turn, reduces the number of accidents, mostly caused by exhaustion due to long driving hours.

However, with the restriction imposed on driving hours, truckers are refrained from traveling sufficient miles to earn a decent pay. Consequently, they demand higher wages as compensation. The additional wages coupled with high costs of ELDs are being transferred to consumers.

Strong Freight Volume Statistics

Per American Trucking Associations (ATA), freight hauled by trucks is expected to grow approximately 3.4% this year and the uptrend is likely to continue through 2023. Moreover, according to ATA's U.S. Freight Transportation forecast, the trucking industry will continue to gain momentum. ATA expects 20.73 billion tons of freight to be transported by all modes in 2028, representing a significant increase from15.18 billion tons in 2017. With trucks being the most widely used mode of freight transportation, this enormous projection is hugely beneficial for the industry. These figures clearly indicate that the trucking industry boom is here to stay in the coming years as well and rates will continue to rise with demand.

Impressive Price Performance

The Zacks Trucking Industry 's price performance in a year also sheds light on the positivity surrounding the space. The industry has rallied 21.1% compared with the broader Transportation Sector and Zacks S&P 500 Composite's respective gain of 9.1% and 19%.

One Year Price Performance

Zacks Industry Rank Highlights the Bright Picture

The Zacks Industry Rank is pegged at a commendable position of 2 (among 250 plus groups). This highly favorable rank places the companies within the top 1% slot of the Zacks industries.

We classify our entire 250-plus industries into two groups: the top half (i.e. industries with the best average Zacks Rank) and the bottom half (industries with the worst average Zacks Rank).

Using a week's rebalance, the top half beat the bottom half by a factor of more than 2 to 1 over the last decade.

Click here to know more: About Zacks Industry Rank

4 Trucking Stock Picks

Given this bullish backdrop, we believe that it would be prudent to add some of the top-ranked stocks from the industry now. However, choosing winning stocks is by no means an easy task. This is where the role of Zacks Rank, which justifies a company's strong fundamentals, comes into play.

Based on a favorable Zacks Rank #1 or 2, we have zeroed in on four prominent stocks, which should be present in one's portfolio for handsome returns. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Apart from a solid Zacks Rank, these stocks also have an impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the stocks with negative aspects and select only the best bets. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. Our research shows that stocks with a VGM Score of 'A' or 'B' when combined with a Zacks Rank of 1 or 2 (Buy) offer the best upside potential.

ArcBest CorporationARCB , headquartered in Fort Smith, AR, provides freight transportation services and solutions. The company sports a Zacks Rank of 1 and the Zacks Consensus Estimate for current-quarter earnings has been revised 2.8% upward over the past 60 days. Also, the same for current-year earnings has moved 8.4% north in the same time period. The stock has soared 70.5% in a year.

Covenant Transportation Group, Inc . CVTI is a Chattanooga, TN-based truckload carrier offering just-in-time and other premium transportation service for customers throughout the United States and Mexico. The Zacks Consensus Estimate for current-quarter earnings has been revised 20% upward over the past 60 days. Also, the same for current-year earnings has been raised 10.9% over the past 60 days. This Zacks Rank #2 stock has rallied more than 25.6% in a year.

Universal Logistics Holdings, Inc . ULH is an asset-light provider of customized transportation and logistics solutions across the United States, Mexico, Canada and Colombia. The company flaunts a Zacks Rank #1 and the consensus mark for current-quarter earnings has been raised a whopping 85.7% over the past 60 days. The same for full-year earnings has been moved 41.4% up in the same time frame. The stock has skyrocketed more than 100% in a year.

Werner Enterprises, Inc . WERN is a premier transportation and logistics company based in Omaha, NE. The company has a Zacks Rank of 1 and the consensus estimate for current-quarter earnings has been revised 15.7% upward over the past 60 days. The consensus mark for full-year earnings has also moved 10.4% north over the past 60 days. Shares of the company have gained 9.9% in a year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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