U.S. trucking industry has been witnessing significant demand in 2018. The trucking industry is the lifeblood of the economy as it moves more than 70% of the nation’s freight by volume. Truck transport is a “derived demand” industry, which means requirement for truckers depends on the demand for the products that trucks haul. Consequently, trucking serves as a barometer of the U.S. economy.
As the U.S. economy continues to grow, requirement for carriage is also increasing and this momentum is expected to sustain in 2018. At this stage, investment in trucking stocks with favorable Zacks Rank will be a prudent move.
Robust Demand for Truckers
Trucking industry is currently benefiting from two factors. Firstly, the U.S. economy is on solid footing. In its 2017-2018 Freight Transportation Forecast, the American Trucking Association (“ATA”) has predicted persistent growth for truckers driven by manufacturing, consumer spending and international trade over the next 12 years.
Secondly, the trucking industry is currently facing capacity crunch. A healthy labor market with unemployment rate at its lowest in nearly 18 years has resulted in severe shortage of drivers. This has raised the price for truckers. According to the ATA, the United States is currently facing truck driver shortage of approximately 50,000.
Moreover, trucking industry has discovered a new avenue of growth as the demand for online shopping is booming in the United States. Large e-commerce companies are booking truckling space to deliver their products. The ATA estimated that the country will need 898,000 more drivers over the next decade to keep up with growth and demand.
Growth Induced Policies
The two pro-growth agendas of President Trump, namely, significant cut in corporate tax and deregulation are major catalysts to the truckers. The corporate tax rate was lowered from 35% to 21%. A large part of truckers book much of their revenues in the homeland. Consequently, a significant reduction in corporate tax rate borne by truckers would be immediately accretive to cash flow.
Moreover, the Trump administration intends to spend a whopping $1.5 trillion on several infrastructure projects like constructing new roads, bridges, highways, railways and waterways across the country over a period of 10 years. This project will generate significant demand for manufacturing sector, which in turn will raise demand for freight, benefiting the truckers.
Our Choices
A robust U.S. economy, massive tax haul and business friendly policies of the government are anticipated to fuel trucking industry’s growth. However, picking winning stocks can be a difficult task.
This is where our VGM Score comes in handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select the winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score A. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performanee of our five picks year to date.
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ArcBest Corp. ARCB provides freight transportation services and solutions. Its Premium Logistics & Expedited Freight Services segment provides expedited freight transportation services to commercial and government customers. The stock sports a Zacks Rank #1. It has expected earnings growth of 120.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.9% over the last 30 days.
Covenant Transportation Group Inc. CVTI is a truckload carrier that offers just-in-time and other premium transportation service for customers throughout the United States. The stock carries a Zacks Rank #2. It has expected earnings growth of 128.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 6.1% over the last 30 days.
Old Dominion Freight Line Inc. ODFL is a leading, LTL (less-than-truckload), union-free company providing super-regional and national LTL service. The stock carries a Zacks Rank #2. It has expected earnings growth of 47.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 30 days.
Landstar System Inc. LSTR delivers safe, specialized transportation services to a broad range of customers utilizing a network of agents, third-party capacity owners and employees. The stock has a Zacks Rank #2. It has expected earnings growth of 54.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 30 days.
Saia Inc. SAIA is a leading LTL transportation company that provides a variety of trucking transportation and supply chain solutions to a broad range of industries. The stock has a Zacks Rank #2. It has expected earnings growth of 74% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 30 days.
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