We recently compiled a list of the 11 Best Freight Stocks To Buy Now. In this article, we are going to take a look at where FedEx Corporation (NYSE:FDX) stands against the other freight stocks.
The Red Sea Crisis & Shipping Challenges
The Red Sea accounts for 30% of global container trade via the Suez Canal. According to a report by JP Morgan, the Houthi attacks have disrupted the entire supply chain, forcing companies to reroute around Southern Africa, adding 4,000 miles to every journey. Rerouting will increase transit times by almost 30% and global container shipping capacity will decline by almost 9%. The report suggests that spot rates have soared amid the crisis. Spot rates in January 2024 from China to the US West and East Coast rose by 140% to 120% compared to November 2023. Jamie Dimon’s investment bank expects trade disruptions to add 0.7 percentage points to global core goods inflation, and 0.3 percentage points to overall core inflation.
On May 6, Reuters reported that Maersk, the shipping giant, predicted that the crisis would cut the industry’s capacity by almost 20% between Asia and Europe in the second quarter of 2024. Large shipping companies have diverted routes around Africa, leading to a rise in freight costs and shipping time. According to the Danish shipping group, shipping costs between Asia and Europe are now 40% higher for every journey. While experts expect the crisis to slow down before the end of 2024, the uncertainty and risk attached to the future of shipping are costing major shipping companies. To counter bottleneck situations and fuel faster sailing, companies are increasing their shipping capacity. The company has so far released over 125,000 additional containers. You can also read our piece on the most advanced countries in logistics.
Technology Disrupting the Freight Industry
While the Red Sea crisis is a major headwind for the freight industry, technological advancements will be monumental for the sector’s growth. Companies like GXO are using technology to disrupt the industry. You can also take a look at the richest billionaires in the logistics industry.
On May 14, the company deployed robots for a global sporting goods retailer in France. The robotics solution was designed to reduce the order processing time and improve response time to seasonal volume changes. The solution is deployed across 12,000 square meters at the site. The solution includes 500 autonomous mobile robots that manage 70,000 bins on 5.5-meter tall storage racks. In 2023, the company increased its automated and tech systems by 50% and is actively working to integrate machine learning and artificial intelligence. Here are some comments from the company’s Q1 2024 earnings call:
“Automation is a key tenant of our value proposition. And we’re the first mover in trialing the integration of cutting-edge automation like humanoid and AI inside the four walls of the warehouse. We’ve recently introduced some exciting innovations in AI. First, the warehouse optimization pilot we mentioned last quarter was a success driving a productivity increase of approximately 15%, and we’re rolling out the app across our sites as we speak. Second, we’ve recently piloted a proprietary workforce management tool, which we developed in-house. Our tool makes more than 15 million decisions per minute to streamline inventory replenishment and adding about 7% of capacity at no additional cost. We will be deploying this solution broadly across our operations starting this year.”
Now that we have studied the freight industry, let’s discuss some of the best freight stocks to buy now. You can also read our piece on the best transportation stocks to buy.
Our Methodology
To come up with the 11 best freight stocks to buy now, we went over our own rankings, similar rankings on the internet, and three transportation ETFs. We created an initial pool of 30 freight stocks and selected the top 11 with the largest number of hedge fund holders as of Q1 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).
A driver unloading packages from a van for a time-critical delivery.
FedEx Corporation (NYSE:FDX)
Number of Hedge Fund Holders: 56
FedEx Corporation (NYSE:FDX) ranks third on our list of the best freight stocks to buy now. The transport company is focused on transportation, e-commerce, and business services. FedEx Corporation (NYSE:FDX) is on its way to transforming into a carbon-neutral company by 2040. Under its freight segment, the company offers less-than-truckload freight services with various packages including FedEx Freight Priority, FedEx Freight Economy, and FedEx Freight Direct.
FedEx Corporation (NYSE:FDX) is highly popular among investors. At the end of the first quarter of 2024, 56 hedge funds were bullish on FedEx Corporation (NYSE:FDX) and disclosed positions worth $2.1 billion. Of those, Michael Larson’s Bill & Melinda Gates Foundation Trust was the top investor in the company and disclosed a stake worth $444.57 million.
During the first quarter of 2024, the company completed an accelerated share repurchase program of $1 billion. FedEx Corporation (NYSE:FDX) also plans to repurchase an additional $500 million of common stock in the fiscal fourth quarter of 2024, bringing the buyback total for fiscal 2024 to $2.5 billion. It also maintains a strong financial position with cash and cash equivalents worth $5.64 billion, surpassing its current long-term debt portion worth $67 million. The company’s financial position explains its ability to grow its cash dividend by 14.15% over the past 5 years. Here are some comments from Longleaf Partners Fund’s, managed by Southeastern Asset Management, Q1 2024 investor letter:
“FedEx Corporation (NYSE:FDX) – Global logistics company FedEx performed well for the period. The company beat consensus estimates in the quarter and showed material progress in its DRIVE cost reduction program that we have written about previously. FedEx also repurchased substantial stock in the quarter. Its 6% annualized repurchase pace is very strong compared to its history, and the company authorized another $5 billion share repurchase program. FedEx also lowered capital expenditures guidance for the fiscal year, further helping FCF generation. We believe the company is approximately halfway through its cost cutting program with more room to go that is still not appreciated by the market.”
The company’s broad portfolio of transportation, e-commerce, and business services sets it apart from its competitors. The company grew its earnings by 50.43% over the past 12 months. Analysts polled by Yahoo Finance expect the company to grow its earnings by 18.85% in 2024, and by 21.18% in 2025.
Overall FDX ranks 3rd on our list of the best freight stocks to buy. You can visit 11 Best Freight Stocks To Buy Now to see the other freight stocks that are on hedge funds’ radar. While we acknowledge the potential of FDX as an investment, 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 more promising than FDX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.