We recently compiled a list of the 7 Best Transportation Stocks To Invest In Now. In this article, we are going to take a look at where FedEx Corporation (NYSE:FDX) stands against the other transportation stocks.
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.
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).
A driver unloading packages from a van for a time-critical delivery.
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.”
Overall FDX ranks 4th on our list of the best transportation stocks to invest in now. 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 promising and 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.
