In this article, we discuss the 7 best transportation stocks to invest in along with the industry’s growth prospects.
At the September meeting, the Fed decided to lower its target range for the federal funds rate by 0.5%, bringing it down to 4.75%-5%. The decision is based on progress toward reducing inflation, which remains somewhat elevated but is moving closer to the Fed’s 2% target.
This could be a good sign for the transportation industry as lower rates reduce borrowing costs which could help the industry to access cheaper financing. Moreover, lower rates usually encourage consumer spending and could strengthen the supply chain as lower rates improve manufacturing and trade activities.
Fed Chair Jerome Powell noted that the U.S. economy remains strong, with inflation easing significantly from its peak to an estimated 2.2% as of August, while the core PCE rose 2.7%.
Powell emphasized that while the labor market has cooled, with slower job gains and a higher unemployment rate, it is no longer a source of inflationary pressure. The Fed expects inflation to reach 2% in the coming years. It also noted that wage growth has moderated.
Transport Industry Growth Drivers: Manufacturing Output and Consumer Demand
According to a report by Atradius, global transportation and logistics are expected to grow steadily in the coming years, due to rising manufacturing output and consumer demand. The sector is projected to expand by 3.8% in 2024 and 4.0% in 2025, supported by a European recovery, which will strengthen the industry. Decreased oil and fuel prices should relieve some cost pressures, while the impact of the Red Sea crisis will keep freight rates high but likely moderate with the addition of new ships.
The U.S. sector is expected to expand by 2.7% in 2024, supported by strong consumer demand and infrastructure investments, while China’s logistics industry is forecasted to grow by 4.8% due to rising imports, exports, and e-commerce demand. India’s transportation sector is set for significant growth at 12%, fueled by increased middle-class spending. Japan’s industry will see 5.9% growth, driven by recovering industrial production.
On the other hand, in the Eurozone, transportation growth will be slower, at 0.6% in 2024, before accelerating to 2.7% in 2025, while Germany faces a 1.3% decline in 2024. The UK’s transport sector remains challenged by weak business sentiment and labor shortages.
With that, we look at the 7 Best Transportation Stocks To Invest In Now.
7 Best Transportation Stocks To Invest In Now
Our Methodology
For this article, we used transportation ETFs to identify nearly 40 stocks and then narrowed our list to the 7 stocks most widely held by institutional investors. The best transportation stocks to invest in are listed in ascending order of their hedge fund sentiment, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Best Transportation Stocks To Invest In Now
7. Norfolk Southern Corporation (NYSE:NSC)
Number of Hedge Fund Holders: 50
Norfolk Southern Corporation (NYSE:NSC) operates a strong rail transportation network in the U.S., moving a range of materials including agricultural goods, chemicals, petroleum products, and automotive-related items.
The company’s extensive rail system spans over 19,500 route miles across 22 states and the District of Columbia, and connects 800 industrial sites, 175 warehouses, and 43 ports. The infrastructure supports the transportation of more than 7 million carloads each year, which shows the scale and efficiency of its operations.
In 2023, the company completed significant infrastructure improvements amounting to $1 billion, which will improve operational efficiency and service quality. Additionally, in September, the company announced a $200 million investment to expand capacity along the 3B Corridor in Alabama, a crucial route linking northern and central Alabama to the Port of Mobile. This initiative is expected to generate immediate benefits starting in 2025.
Norfolk Southern’s (NYSE:NSC) recent leadership change was discussed by BofA analyst Ken Hoexter on September 12. Following the termination of CEO Alan Shaw, Mark George was appointed as the new President & CEO. The analyst is confident that this transition will be seamless, with COO John Orr continuing to drive operational improvements while George ensures consistency in leadership.
Hoexter highlighted that the company has reaffirmed its full-year 2024 targets. The firm made note of Norfolk Southern’s (NYSE:NSC) combination of ongoing productivity enhancements, a focus on volume growth, and the ability to increase yields, which position it for substantial earnings growth.
Given these factors, the analyst maintained a Buy rating on the stock, with a price target of $259. With a solid operational foundation and strategic investments underway, the company is well-positioned to advance in the evolving transportation landscape.
Norfolk Southern (NYSE:NSC) was part of 50 hedge funds’ portfolios in the second quarter with a total stake value of $1.118 billion. Ancora Advisors is the biggest shareholder in the company and has a position worth $242.81 million as of Q2. It takes the 7th spot on our list of the best transportation stocks to invest in now.
6. Lyft, Inc. (NASDAQ:LYFT)
Number of Hedge Fund Holders: 53
One of the best transportation stocks, Lyft, Inc. (NASDAQ:LYFT) has carved out a significant presence in the ridesharing sector in the United States and Canada since its inception in 2012. It operates a peer-to-peer marketplace that connects drivers with passengers through its user-friendly mobile application.
The platform facilitates a variety of transportation options, which cater to different customer needs with services like standard rides, Lyft XL for larger groups, and Lux for a premium experience. Additionally, the Express Drive program allows drivers to rent vehicles, broadening the scope of its offerings.
In Q2, 53 hedge funds had investments in Lyft (NASDAQ:LYFT), with positions worth $744.961 million. Appaloosa Management LP is the top investor in the company as of Q2. In the quarter, the firm increased its stake by 1603% to 7.96 million shares worth $112.25 million.
In the second quarter, the company achieved significant milestones, recording a remarkable 205 million rides, marking a 15% increase compared to the same period last year. The surge in activity was also seen in the growth of active riders, which reached an all-time high, showing a 10% year-over-year increase. The vibrant user engagement points to a platform that continues to attract and retain customers effectively.
Q2’s revenue soared nearly 41% from the previous year. The growth can be attributed to increased pricing strategies and the successful rollout of Lyft Media, which introduces advertisements from major brands into the app.
Significantly, the second quarter marked Lyft’s (NASDAQ:LYFT) first GAAP profitability, though modest at $5 million. The achievement is a sign of the company’s evolving financial health as it navigates a competitive market.
To further improve user experience, the company introduced a price lock feature designed to help riders avoid unexpected surge pricing. Moreover, it expects mid-teens growth in rides throughout the year, which indicates strong demand and effective operational execution.
At the Goldman Sachs Communacopia + Technology Conference in September, CFO Erin Brewer highlighted that the company has achieved double-digit growth in active riders for four consecutive quarters, alongside consistent increases in ride frequency.
Brewer commented that Lyft (NASDAQ:LYFT) is on track to deliver approximately $16 billion in gross bookings, which suggests that it is well-positioned to capitalize on current trends in the ridesharing market.
