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3 Trucking Stocks to Keep an Eye on Amid Industry Challenges

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Persistent truck driver shortages have been negatively impacting the growth of the Zacks Transportation – Truck industry. Additionally, rising operating expenses, caused by high fuel costs, are hurting the prospects of trucking stocks.

However, amidst this gloom, there are several positive factors to consider. These include improving freight demand and investor-friendly measures. Old Dominion Freight Line (ODFL), J.B. Hunt Transport Services, Inc. (JBHT), and ArcBest Corporation (ARCB) are well-positioned to capitalize on these positive aspects.

About the Trucking Industry

The Zacks Transportation – Truck industry consists of companies that transport freight to diverse customers, mainly across North America. These companies provide full-truckload or less-than-truckload (LTL) services over short, medium, or long distances. They offer various trucking services such as dry-van, dedicated, refrigerated, flatbed, and expedited. Many of these companies have an extensive fleet of company-owned tractors and trucks, as well as independent contractor trucks. In addition to trucking, most companies offer logistics and intermodal services, as well as value-added services like container drayage, truckload brokerage, supply-chain consulting, and warehousing.

4 Trends Shaping the Future of the Trucking Industry

Improving Freight Demand: Despite inflation-related headwinds, the trucking industry is experiencing an improvement in freight market conditions. Increased freight demand has been driving trucking volumes, thereby boosting companies’ top line. The American Trucking Association’s (ATA) For-Hire Truck Tonnage Index rose 0.2% in August 2023, indicating a steady improvement in trucking volumes.

Prolonged Truck-Driver Shortage: The ongoing driver shortage crisis in the trucking industry is exacerbating supply-chain challenges across the United States. The shortage of drivers limits trucking capacity and makes it difficult for companies to meet the increased freight demand. According to ATA’s chief economist, Bob Costello, the trucking industry could face a shortage of over 160,000 drivers by 2030.

High Fuel Costs & Supply-Chain Woes: Rising operating expenses, particularly high fuel costs, are putting pressure on the trucking industry’s profitability. Fuel expenses are a significant input cost for transportation players. High oil prices, coupled with supply-chain challenges, are further impacting the industry’s prospects.

Dividend Hikes Signal Financial Strength: Many trucking companies have resumed shareholder-friendly measures, such as dividend payouts, indicating their strong financial footing and confidence in the business. For example, JBHT increased its dividend by 5% in January 2023, while ODFL raised its dividend by 33% in February 2023.

Zacks Industry Rank Indicates Dull Prospects

The Zacks Trucking Industry currently holds a Zacks Industry Rank of 239, placing it in the bottom 5% of more than 250 Zacks industries. This low ranking indicates the industry’s weak near-term prospects. Historically, the top 50% of Zacks-ranked industries have outperformed the bottom 50% by more than 2 to 1.

The industry’s downtrend is primarily due to a negative earnings outlook and declining analysts’ confidence in the earnings growth potential of constituent companies. The Zacks Consensus Estimate for 2023 earnings has declined by 30.1% year over year for the industry as a whole.

Industry’s Performance and Valuation

Over the past year, the Zacks Transportation – Truck industry has outperformed the broader market. The industry has surged by 35% compared to the S&P 500 composite’s rise of 17.4%. However, the broader transportation sector only increased by 10.9% during the same period.

In terms of valuation, trucking stocks are currently trading at a lower EV-to-EBITDA multiple compared to the S&P 500 and the broader sector. The industry’s multiples range from 6.78X to 15.87X over the past five years.

Top 3 Trucking Stocks to Watch

1. Old Dominion (ODFL): As a leading LTL entity based in Thomasville, NC, Old Dominion has benefited from improved freight demand. Despite weakness in the market, the company’s LTL revenue per hundredweight has increased by 5.2% year over year in the first half of 2023. ODFL’s stock has surged by 59.8% over the past year.

2. J.B. Hunt (JBHT): J.B. Hunt Transport Services provides a wide range of transportation services in the United States, Canada, and Mexico. The company has rewarded its shareholders through dividend payments and share repurchases. JBHT’s stock has gained 14.5% year over year.

3. ArcBest (ARCB): Based in Fort Smith, AK, ArcBest offers freight transportation services and solutions. Higher pricing and strong shipper demand have been driving growth across ArcBest’s segments. The company’s MoLo Solutions acquisition has also enhanced its operations. ARCB’s stock has surged by 39.2% over the past year.

It’s important to monitor these stocks within the trucking industry as they navigate through the challenges and opportunities presented by the current market conditions.

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