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.
5. United Airlines Holdings, Inc. (NASDAQ:UAL)
Number of Hedge Fund Holders: 56
United Airlines Holdings, Inc. (NASDAQ:UAL) is an Illinois-based airline. It is one of the world’s largest airlines with an extensive domestic and international flight network. It serves nearly 213 destinations in the US and over 130 internationally.
The airline has also made significant investments in improving passenger experiences and offers various cabin classes, including its Polaris business class and Premium Plus service, alongside an evolving fleet that focuses on modern amenities. With a strong infrastructure, extensive network, and commitment to innovation, it remains one of the key competitors in the global airline industry.
During the second quarter, United Airlines (NASDAQ:UAL) reported a non-GAAP EPS of $4.14, which surpassed estimates by $0.21. Revenue reached $14.99 billion, which marked a 5.7% increase year-over-year and beat expectations by $20 million. The company’s capacity also rose by 8.3% compared to the previous year, a sign of its ability to scale operations effectively in response to growing customer demand.
In the second quarter, the company reported a historic milestone by transporting 44.4 million passengers, the highest for this timeframe in the company’s history. Additionally, it set a daily record by serving 565,000 travelers in one day. On top of that, international capacity was 35% greater than that of its nearest U.S. rival, which shows its dominant market presence.
United Airlines’ (NASDAQ:UAL) stock was held by 56 hedge funds in Q2 with total positions worth $1.468 billion, bringing the company to the 5th spot on our list of the best transportation stocks to invest in. PAR Capital Management was the company’s top shareholder with 4.559 million shares worth $221.843 million.
4. FedEx Corporation (NYSE:FDX)
Number of Hedge Fund Holders: 59
FedEx Corporation (NYSE:FDX) is an American multinational transportation, e-commerce, and business services company headquartered in Tennessee. The company pioneered the overnight delivery service and expanded its offerings to include various shipping and logistics solutions through its subsidiaries, such as FedEx Express and FedEx Freight.
The company has a strong infrastructure including one of the largest air cargo fleets globally and it plays a significant role in facilitating efficient parcel delivery and logistics management.
FedEx (NYSE:FDX) announced its earnings on September 19, missing the revenue and EPS expectations. The EPS of $3.60 was $1.17 below estimates and revenue of $21.6 billion missed the forecast by $310 million. Despite that, the company remains on track to achieve $4 billion in savings through its DRIVE program by FY 2025.
The company’s drive program is “a comprehensive program to improve the company’s long-term profitability.” In the first quarter alone, the company achieved $390 million in DRIVE-related savings, which shows the effectiveness of its cost-reduction strategies. The company expects these savings to build sequentially throughout the fiscal year and improve its profit margins.
FedEx (NYSE:FDX) also mentioned its $5.2 billion CapEx plan for FY 2025 during its Q1 2025 earnings call, which is aimed at investing in high-return segments of its portfolio. As of August 31, the company’s cash on hand was $5.9 billion. Moreover, with a strong balance sheet and $1 billion in stock repurchases in Q1, the company shows confidence in its long-term value creation potential.
With 59 hedge funds holding FedEx’s (NYSE:FDX) shares in Q2, it takes the 4th spot on our list of best transportation stocks to invest in. Bill & Melinda Gates Foundation Trust has a position worth $460.063 million in the company and is its most significant shareholder, as of June 30.
You can also take a look at FedEx Corporation (FDX): A Bull Case Theory.
Longleaf Partners Fund stated the following regarding FedEx Corporation (NYSE:FDX) in its Q2 2024 investor letter:
“FedEx Corporation (NYSE:FDX) – Global logistics company FedEx was the top contributor for the quarter. Late in the quarter, FedEx reported strong fiscal year results, highlighting a year of strong cost management in a challenging revenue environment. Earnings per share (EPS) increased by 19%, and reduced capital expenditures narrowed the gap between EPS and FCF per share. With the increase in FCF, the company has become a significant share repurchaser, which is a welcome change. The company also announced a strategic review of their Freight segment. Our appraisal has long accounted for the underappreciated value in FedEx’s less-than-truckload operations. A potential spin-off or sale could unlock substantial value, as comparable companies like Old Dominion trade at significantly higher multiples on revenue, cash flow, and earnings than those applied to FedEx Freight by the market and our appraisal today.”
3. CSX Corporation (NASDAQ:CSX)
Number of Hedge Fund Holders: 65
CSX Corporation (NASDAQ:CSX) is an American holding company that focuses on rail transportation and real estate operations across North America. It was created in 1980 through the merger of Chessie System and Seaboard Coast Line Industries and has since evolved significantly over the decades.
The company’s rail network, known as CSX Transportation, spans about 20,000 route miles across 26 states, the District of Columbia, and parts of Canada, serving large population centers where nearly two-thirds of Americans reside. It also has access to over 70 port terminals along the Atlantic and Gulf Coasts, as well as connections to Pacific ports through partnerships with western railroads.
CSX (NASDAQ:CSX) is a shareholder-friendly company that has raised its dividend for the last two decades. As of September 20, the company has a dividend yield of 1.37%. This was also praised by Argus analyst John Eade, as reported by The Fly on August 19.
The analyst said that on a micro basis, the firm appreciates the company’s track record of increasing its dividend and buying back its stock. Eade maintained a Buy rating on the company stock with a $39 price target. He said that recent declines in CSX’s (NASDAQ:CSX) stock price present a good chance to buy shares. He believes that, overall, the rail industry is growing steadily compared to other transportation options.
CSX’s (NASDAQ:CSX) shares were held by 65 hedge funds in the second quarter, at a combined value of $3.5 billion. This makes the company the third best transportation stock to invest in. As of June 30, Fisher Asset Management holds the most prominent position in the company with 23.8 million shares, worth $796.1 million.
ClearBridge Investments stated the following regarding CSX Corporation (NASDAQ:CSX) in its first quarter 2024 investor letter:
“On a regional basis, the U.S. and Canada was the top contributor for quarter, with U.S. electric utility Constellation Energy and U.S. rail operator CSX Corporation (NASDAQ:CSX) the lead performers. CSX runs the second-largest listed U.S.-centric railroad in terms of market cap, owning over 20,000 miles of track and operating across 23 states mostly on the East Coast. CSX was an outperformer as quarterly results demonstrated best-in-class adjusted operating margins combined with continued volume recovery, which has surpassed expectations.”
2. Union Pacific Corporation (NYSE:UNP)
Number of Hedge Fund Holders: 82
Union Pacific Corporation (NYSE:UNP) operates one of the largest freight railroad networks in the United States and primarily serves the western half of the country. It is the parent company of the Union Pacific Railroad, a leading freight carrier that plays a significant role in the transportation of goods across the U.S. It holds a dominant position in rail freight transport west of the Mississippi River. It is one of the best transportation stocks to invest in.
The company has expanded over the years through strategic mergers and acquisitions, including the Missouri Pacific Railroad, the Southern Pacific Transportation Company, and the Chicago and North Western Railway. The company’s rail network is important for transporting agricultural products, industrial goods, and energy resources across the nation.
On September 20, TipRanks reported that BMO Capital’s Fadi Chamoun reaffirmed a Buy rating on Union Pacific (NYSE:UNP) with a $275 price target. The analyst sees strong growth potential for the company if the freight market improves and praised the company’s leadership and operational focus.
Chamoun believes that the company’s conservative growth estimates may be too cautious, which could result in better-than-expected earnings. Despite minor adjustments to its buyback plan, the analyst’s outlook remains positive.
On the same day, several other analysts maintained a Buy-equivalent rating on Union Pacific’s (NYSE:UNP) stock. Jonathan Chappell from Evercore ISI and RBC Capital analyst Walter Spracklin maintained a Buy rating on the company with a price target of $254 and $275, respectively.
In Q2, 82 hedge funds had stakes worth $4.46 billion in Union Pacific (NYSE:UNP). With 6.14 million shares worth nearly $1.4 billion, Fisher Asset Management is the company’s most prominent shareholder, as of June 30.
1. Uber Technologies, Inc. (NYSE:UBER)
Number of Hedge Fund Holders: 145
Uber Technologies, Inc. (NYSE:UBER) is a global leader in ride-hailing, food delivery, and freight services, among other things. The company revolutionized urban transportation by connecting passengers with drivers through a mobile app after it was founded in 2009. It operates in over 70 countries and across 10,000 cities, with millions of daily trips.
The company has become the largest ride-sharing platform worldwide and remains a dominant force in the tech and transportation sectors. Moreover, the company is also making strides in autonomous driving. In 2023, Uber (NYSE:UBER) partnered with Waymo, a subsidiary of Alphabet, making Phoenix the first city where Uber users can access Waymo’s self-driving cars and has since been expanding this partnership to other states.
On September 13, the companies announced that they would launch their autonomous ride-hailing in Austin and Atlanta in 2025. The ride-hailing company is also collaborating with other companies such as Cruise and Wayve to extend its autonomous rides offerings.
Uber (NYSE:UBER) takes the top spot on our list of best transportation stocks to invest in as its stock was held by 145 hedge funds in Q2, at a combined value of $8.7 billion. As of June 30, Altimeter Capital Management is the company’s largest shareholder with 13.515 million shares worth $982.274 million.
Uber (NYSE:UBER) and Darden Restaurants recently signed an exclusive multi-year partnership, starting with Olive Garden in late 2024. The agreement will allow customers to order delivery directly through Olive Garden’s website and app, with Uber Direct handling the deliveries. A pilot program at select Olive Garden locations will launch in late 2024, with plans to expand nationwide by May 2025.
In a CNBC interview, Morgan Stanley’s Brian Nowak saw this as a positive development for Uber (NYSE:UBER) and said that the company’s delivery platform is part of a larger strategy to expand restaurant options and increase delivery volume. It aims to maximize the utilization of its courier fleet by driving more orders through the platform.
He added that this partnership also allows restaurants to gauge the potential for increased demand as more food delivery shifts from offline to online. With only a small percentage of restaurant spending currently online, the ride-hailing company sees significant growth potential in the coming years as more dollars transition to digital platforms.
We also posted a bull case around Uber (NYSE:UBER) on September 12, you can check it out here: Uber Technologies, Inc. (UBER): A Bull Case Theory.
RiverPark Advisors stated the following regarding Uber Technologies, Inc. (NYSE:UBER) in its first quarter 2024 investor letter:
“Uber Technologies, Inc. (NYSE:UBER): UBER was a top contributor in the quarter following better than expected 4Q23 earnings and 1Q24 guidance. Gross bookings of $37.6 billion were up 22% year over year. Mobility gross bookings of $19.3 billion grew 29% over last year driven by a combination of product innovation and driver availability. Delivery gross bookings of $17 billion were up 19% from last year and continued to be strong throughout the quarter. 4Q Adjusted EBITDA of $1.3 billion, up $618 million year over year, was better than management’s guidance of $1.2 billion, and the company generated $768 million of free cash flow, up from a cash loss of $303 million last year. Management guided to continuing growth in 1Q Gross Bookings (20% growth) and Adjusted EBITDA (of $1.3 billion). The company hosted a well-received analyst day in February during which it guided to three year compounded annual growth rates for gross bookings of mid-to-high single digits and EBITDA of 30-40%, both above investor expectations. The company also guided to free cash flow conversion of 90% of EBITDA.
UBER remains the undisputed global leader in ride sharing, with a greater than 50% share in every major region in which it operates. The company is also a leader in food delivery, where it is number one or two in the more than 25 countries in which it operates. Moreover, after a history of losses, the company is now profitable, delivering expanding margins and substantial free cash flow. We view UBER as more than a ride sharing and food delivery service; we also see it as a global mobility platform with 142 million users (by comparison, Amazon Prime has 200 million members) and the ability to penetrate new markets of on-demand services, such as package and grocery delivery, travel, and hourly worker staffing. Given its $5.4 billion of unrestricted cash and $4.8 billion of investments, the company today has an enterprise value of $165 billion, indicating that UBER trades at 21x our estimates of next year’s free cash flow.”
While we acknowledge the potential of Uber Technologies, Inc. (NYSE:UBER) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is promising and trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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