Hedge Funds’ Favorite Freight and Logistics Stocks

The freight and logistics industry is the backbone of any economy. Unlike other industries, where it’s usually hard to accurately predict how the changing macros will affect their business, the fortunes of the logistics industry are always in direct correlation with the health of the economy. Due to such direct correlation , large macro investors generally prefer the freight and logistics sector over most other sectors when it comes to placing their bets. Since at Insider Monkey a large number of the investors that we track fall under the category of macro hedge funds, we regularly cover the logistics sectors and identify the most popular stocks within that sector among hedge funds every quarter. This post is one such exercise. Read further, to know which were the five most popular freight and logistics stocks among hedge funds heading into the second quarter.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

#5. YRC Worldwide Inc (NASDAQ:YRCW)

– Investors with long positions (as of March 31): 23

– Aggregate value of investors’ holdings (as of March 31): $90.66 Million

YRC Worldwide Inc (NASDAQ:YRCW) saw a major drop in its popularity among hedge funds tracked by us during the first quarter. However, that drop wasn’t in terms of the numbers of funds that held a stake in the company, which came down by only by three, but in terms of the aggregate value of their holdings, which saw a decline of over 50%. A large part of that decline in the aggregate value of hedge fund’s holdings in the company during the first quarter can be attributed to the 35% decline in YRC Worldwide Inc (NASDAQ:YRCW)’s stock the same period. Hedge funds that reduced their stakes in the company during the first quarter included Marc Lasry‘s Avenue Capital, which brought its holding down by 19% to nearly 4.8 million shares. On May 2, analysts at Deutsche Bank reiterated their ‘Buy’ rating on the stock, but lowered their price target on it to $16 from $20.

#4. J B Hunt Transport Services Inc (NASDAQ:JBHT)

– Investors with long positions (as of March 31): 27

– Aggregate value of investors’ holdings (as of March 31): $303.04 Million

Owing partially to the 15% rally in its stock, J B Hunt Transport Services Inc (NASDAQ:JBHT) saw its popularity among hedge funds rise slightly during the first quarter. While the ownership of the company among funds covered by us increased by five, the aggregate value of their holdings in it saw a marginal rise of 1% during that period. Ira Unschuld‘s Brant Point Investment Management was one of the funds that initiated a stake in J B Hunt Transport Services Inc (NASDAQ:JBHT) during the first quarter; it bought 70,000 shares of the company during that period. Though J B Hunt Transport Services Inc has increased its dividend consistently over the past many years, its stock currently sports an annual dividend yield of only 1.07%. For its fiscal 2016 second quarter analysts expect the company to report EPS of $1.00 on revenue of $1.63 billion, compared to EPS of $0.88 on revenue of $1.54 billion it had reported for the same quarter last year.

#3. Swift Transportation Co (NYSE:SWFT)

– Investors with long positions (as of March 31): 32

– Aggregate value of investors’ holdings (as of March 31): $404.26 Million

Although Swift Transportation Co (NYSE:SWFT)’s stock has fallen over 16% so far in the second quarter, it is still the best performing stock among the ones covered in this list when it comes to year-to-date gains. The 35% gain made by the stock during the first quarter has ensured that it is trading up 15% year-to-date, despite the recent decline it has seen since the company came out with its first quarter numbers. While analysts had projected Swift Transportation Co (NYSE:SWFT) to report EPS of $0.21 on revenue of $1.01 billion for the quarter, it declared EPS of $0.25 on revenue of $967.80 million. During the first quarter, the number of hedge funds we cover that held a stake in Swift Transportation Co climbed up by seven and the aggregate value of their holdings in it swelled by over 10%. Billionaire Israel Englander‘s Millennium Management cut its stake in the company by more than half to 1.73 million shares during that period.

#2. United Parcel Service, Inc. (NYSE:UPS)

– Investors with long positions (as of March 31): 35

– Aggregate value of investors’ holdings (as of March 31): $1.77 Billion

Amid a 10% rise in United Parcel Service, Inc. (NYSE:UPS)’s stock during the first quarter, its ownership among hedge funds covered by us came down by one and the aggregate value of their holdings in it fell by $368 million. The 35 hedge funds that owned a stake in the company accounted for 1.90% of its float at the end of March. Funds that boosted their holdings in United Parcel Service, Inc. (NYSE:UPS) significantly during that period included billionaire Ken Griffin‘s Citadel Investment Group, which increased its stake eightfold and, at the end of the quarter, owned 282,081 shares of the company. Most of the analysts who track the logistics behemoth are currently bullish on it despite some of the short-term headwinds the company faces. The stock sports an average rating of ‘Overweight’ and an average price target of $108.71 from 27 analysts who cover it.

#1. FedEx Corporation (NYSE:FDX)

– Investors with long positions (as of March 31): 45

– Aggregate value of investors’ holdings (as of March 31): $3.44 Billion

The number of hedge funds covered by us that owned a stake in FedEx Corporation (NYSE:FDX) inched down by two during the first quarter, however, the aggregate value of their holdings in the company saw a modest rise of 4% during the same period. Billionaire David E. Shaw‘s firm, D.E. Shaw, was among the hedge funds that sold a large part of their holdings in the company during the first quarter; it cut the stake by 71% to 263,663 shares. On May 25, FedEx Corporation (NYSE:FDX) announced that it had completed the acquisition of TNT Express, which was announced last year, and will now focus on integrating it. Also last month, Barclays analyst Brandon R. Oglenski released a note to his clients, in which he upgraded the stock ‘Overweight’ from ‘Equal-Weight’ and raised his price target to $205 from $175. In his note, Mr. Oglenski explained the upgrade by saying that they “think the combination of solid package market dynamics, a management team more focused on margins over growth and a relatively ‘cheap’ valuation should support meaningful appreciation for long-term investors”.

Disclosure: None