Credit: Shutterstock photoEvery now and again it is a good idea for investors to take a step back from individual stocks and the grind of the daily news and data releases and take time to consider a few overarching investment themes in terms of industries and sectors. At times, it seems that economic news and trends are coming together to create a perfect storm for one type of business, yet stocks in that sector are still depressed due to short-term, cyclical factors.
That is the case right now in the transport sector, and more specifically in trucking and logistics. If you can get past the political news and the noise there are some fundamental changes happening in the U.S. that must, over time, benefit trucking companies.
It may have escaped your attention, what with Comey fever gripping the news media and all, but this week is “infrastructure week” according to the embattled White House. The fact that infrastructure was the subject of choice in a week where distraction is at a premium is telling in and of itself. It is one of the few subjects where there is some bi-partisan agreement in American politics these days.
The amount of money that is needed and how the spending is financed may be sources of disagreement, but there are very few politicians who wouldn’t want to see increased spending on the nation’s roads and bridges, especially if that money were spent in their state or district.
Whoever the winners may be in the pork battle, logistics companies stand to benefit. The direct beneficiaries of a big government infrastructure spend, of course, would be construction and civil engineering companies, but the benefit to trucking companies of having the American public finance a massive improvement in the nation’s roadways should not be underestimated.
Another story buried beneath the Comey coverage in the news today is also symbolic of another trend that, while disruptive, could be a huge long-term boon to logistics firms. Honda (HMC), which has been slow to develop autonomous vehicles, announced that they intend to have one in full production by 2025. That is still behind the curve a little, but when even the relatively skeptical auto builders are making major commitments to driverless cars it once again demonstrates the inevitability of their dominance.
With that, in fact probably before that, will come driverless trucks.
Disruption of the labor market is a likely consequence of that momentous change, but it will result in a massive cost reduction for firms like UPS (UPS), FedEx (FDX) and J.B. Hunt Transport (JBHT). Some of that will be passed on to the consumer, but it will also make for much better margins in the industry. Even with better margins, lower prices require increasing volume for bottom line growth, but for trucking companies that shouldn’t be an issue. The well documented shift to online shopping and normal economic growth will take care of that.
Despite these major advantages, however, most stocks in the trucking business, indeed transports as a whole, have been relatively weak this year, and that creates an opportunity to buy at a discount. More cautious investors should consider a broad-based transport ETF such as IYT or XTN, but a strategy more focused on the trucking industry would be preferable, utilizing the three stocks mentioned above or others if you prefer. Whatever your choice, given the fundamental shifts taking place in the economy and consumer behavior, exposure to logistics companies is a must for long-term investors.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
