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In this article, we discuss 10 best transportation stocks to buy heading into 2023. If you want to see more stocks in this selection, check out 5 Best Transportation Stocks To Buy Heading Into 2023.
The International Air Transport Association (IATA) is reiterating a positive outlook for the global airline industry and forecasts that airlines combined will record a net profit of $4.7 billion next year. That would be the industry’s first positive season since the pandemic started in 2020. IATA observed in June that industry wide profitability “appears within reach” in 2023. As per data by IATA, passenger levels will return to pre-pandemic numbers in 2024, which is approximately 5.2 billion passengers. Airline industry losses in 2022 reached $6.9 billion, shrinking from the $9.7 billion loss forecast in June. IATA chief economist Marie Owens Thomsen said that the industry’s financial results were “nothing but phenomenal.”
Shipping rates that ran rampant during challenges caused by the COVID-19 pandemic have now plunged, which some market experts are calling a “freight recession”, as inventory surplus across the US met weaker demand. This scenario has put the shipping freight sector at a disadvantage during annual contract negotiations, but this is positive for retailers and other customers who will benefit from reasonable transportation costs.
Some of the best transportation stocks to buy heading into 2023 include Union Pacific Corporation (NYSE:UNP), Uber Technologies, Inc. (NYSE:UBER), and Canadian Pacific Railway Limited (NYSE:CP).
Our Methodology
We selected the following transportation stocks based on positive analyst coverage, strong business fundamentals, and market visibility. We have assessed the hedge fund sentiment from Insider Monkey’s database of 920 elite hedge funds tracked as of the end of the third quarter of 2022.
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Best Transportation Stocks To Buy Heading Into 2023
10. Star Bulk Carriers Corp. (NASDAQ:SBLK)
Number of Hedge Fund Holders: 16
Star Bulk Carriers Corp. (NASDAQ:SBLK) was incorporated in 2006 and is based in Marousi, Greece. It is a shipping company that specializes in the ocean transportation of dry bulk cargoes worldwide. The company's vessels transport iron ores, coal, grains, bauxite, fertilizers, and steel products. Star Bulk Carriers Corp. (NASDAQ:SBLK) is set to pay a $1.20 per share quarterly dividend on December 12, to shareholders of the company as of November 30. The dividend yield on December 8 came in at 26.03%.
On October 27, Deutsche Bank analyst Amit Mehrotra maintained a Buy recommendation on Star Bulk Carriers Corp. (NASDAQ:SBLK) but lowered the firm's price target on the shares to $33 from $40 ahead of the company's Q3 results.
According to Insider Monkey’s data, Star Bulk Carriers Corp. (NASDAQ:SBLK) was part of 16 hedge fund portfolios at the end of Q3 2022, compared to 18 in the prior quarter. Howard Marks’ Oaktree Capital Management is the leading position holder in the company, with 26 million shares worth $454.8 million.
In addition to Union Pacific Corporation (NYSE:UNP), Uber Technologies, Inc. (NYSE:UBER), and Canadian Pacific Railway Limited (NYSE:CP), Star Bulk Carriers Corp. (NASDAQ:SBLK) is one of the best transportation stocks to consider buying for 2023.
Here is what Massif Capital has to say about Star Bulk Carriers Corp. (NASDAQ:SBLK) in its Q3 2021 investor letter:
“We initiated one long position, one short position and exited one position during the third quarter. Our new long position was in Star Bulk Carriers (SBLK), a pure-play dry bulk operator with roughly 120 controlled vessels and 14 million tons of combined cargo capacity globally.
SBLK has one of the better management teams in the maritime shipping industry and the lowest cost structure among all dry bulk names. After announcing their new dividend policy in May, SBLK now has one of the best payout structures in shipping. The firm has paid out $0.3 and $0.7 per share in dividends for the first and second quarters of 2021. SBLK will most likely announce a dividend for the third quarter somewhere in the $1.15-$1.25 per share range, depending on movement in net working capital.
We believe the best way to look at this business is through cash generation potential and how much is returned to investors. The current equity valuation does not reflect current rates for shipping (earnings), partly because of the velocity of the move in rates and because shipping cycles turn, and it’s not clear whether this is a local top or the early innings of a multi-year cycle. Our belief is the latter. Part of our catalyst is the market re-rating the stock higher once the length of the increased earnings power becomes understood. It is a relatively strong catalyst in the sense that with a strong dividend policy, we can be patient for the market to underwrite this story as the cash is either returned to us via a high dividend yield if the market is either slow or chooses not to join our side of the trade.
Our estimates suggest a time-charter equivalent rate (net profit or loss of operating a vessel daily) of at least $30,000 for SBLK in Q4, with the firm earning a potential annual average of $26,000. Our base case is that this is a strong floor going into next year, with little need to articulate much more upside. If rates hold, which we expect them to do, we could see a 20+% annual dividend next year for SBLK. If the market priced the equity such that the dividend yield was 8%, that implies a $62 stock. Today our base case target for the firm is $37 per share. This is likely conservative as we know that third-quarter rates are higher than the second quarter, and third-quarter dividends will most likely reflect that. We are cautious about diving too deep into the sensitivities to the upside with this position as we are arriving at some pretty remunerative torque using current contracted values and seemingly conservative forecasts…” (Click here to see the full text)
9. Knight-Swift Transportation Holdings Inc. (NYSE:KNX)
Number of Hedge Fund Holders: 30
Knight-Swift Transportation Holdings Inc. (NYSE:KNX) is an Arizona-based company that provides truckload transportation services in the United States, Mexico, and Canada. The company operates through four segments – Trucking, Logistics, Less-than-truckload (LTL), and Intermodal. Knight-Swift Transportation Holdings Inc. (NYSE:KNX) is one of the best transportation stocks to invest in. On November 3, Knight-Swift Transportation Holdings Inc. (NYSE:KNX) declared a $0.12 per share quarterly dividend, in line with previous. The dividend is payable on December 27, to shareholders of record on December 5.
On November 28, Deutsche Bank analyst Amit Mehrotra raised the price target on Knight-Swift Transportation Holdings Inc. (NYSE:KNX) to $69 from $63 and maintained a Buy rating on the shares. The analyst is positive on the outlook for transportation equities in 2023. He estimates the trough in earnings growth will likely be in Q2, followed by a "prolonged period of improving year-on-year growth."
According to Insider Monkey’s data, 30 hedge funds were bullish on Knight-Swift Transportation Holdings Inc. (NYSE:KNX) at the end of Q3 2022, with collective stakes worth $403.7 million, compared to 30 funds in the prior quarter worth $378 million. Jos Shaver’s Electron Capital Partners is the largest position holder in the company, with 1.65 million shares worth $81 million.
8. J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT)
Number of Hedge Fund Holders: 33
J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) is an Arkansas-based provider of surface transportation, delivery, and logistic services in North America. The company operates through five segments – Intermodal, Dedicated Contract Services, Integrated Capacity Solutions, Final Mile Services, and Truckload. On October 18, J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) reported a Q3 GAAP EPS of $2.57 and a revenue of $3.84 billion, topping market estimates by $0.11 and $50 million, respectively. In the third quarter 2022, the company purchased approximately 349,000 units of its common stock for about $61 million. J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) is one of the best transportation stocks for next year.
On November 28, Deutsche Bank analyst Amit Mehrotra reiterated a Buy rating on J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) but trimmed the price target on the shares to $228 from $230. The analyst is optimistic about the outlook for transportation equities in 2023 and J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) is one of his top five picks for 2023.
Among the hedge funds tracked by Insider Monkey, Henry Ellenbogen’s Durable Capital Partners is the leading position holder in J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) as of the end of September 2022, with 2.3 million shares worth $358.5 million. Overall, 33 hedge funds were bullish on J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) in Q3 2022, compared to 30 funds in the prior quarter.
7. United Airlines Holdings, Inc. (NASDAQ:UAL)
Number of Hedge Fund Holders: 37
United Airlines Holdings, Inc. (NASDAQ:UAL) was incorporated in 1968 and is headquartered in Chicago, Illinois. The company provides air transportation services in North America, Asia, Europe, Africa, the Pacific, the Middle East, and Latin America. United Airlines Holdings, Inc. (NASDAQ:UAL) transports passengers and cargo through its mainline and regional fleets. After market-beating Q3 results, the airline now expects fourth quarter adjusted operating margin to be above 2019 levels for the first time.
On December 6, Argus analyst John Staszak upgraded United Airlines Holdings, Inc. (NASDAQ:UAL) to Buy from Hold with a $52 price target. Demand for air travel should continue to rebound from the pandemic, with "strong growth" forecasted in business and international travel, the analyst told investors in a research note. He further observed that United Airlines Holdings, Inc. (NASDAQ:UAL) should benefit from limited industry capacity due to delayed aircraft deliveries, and increased his FY22 EPS view to $2.00 from $1.30 and his FY23 view to $5.80 from $5.40.
According to Insider Monkey’s Q3 data, 37 hedge funds were bullish on United Airlines Holdings, Inc. (NASDAQ:UAL), compared to 35 funds in the prior quarter. Israel Englander’s Millennium Management is a prominent stakeholder of the company, with approximately 4 million shares worth $126.6 million.
6. XPO Logistics, Inc. (NYSE:XPO)
Number of Hedge Fund Holders: 37
XPO Logistics, Inc. (NYSE:XPO) is a Connecticut-based company that provides freight transportation services in the United States, the United Kingdom, Europe, and internationally. XPO Logistics, Inc. (NYSE:XPO) announced that adjusted EBITDA increased to $352 million for the third quarter of 2022, compared to $307 million for the same period in 2021. The company also had $142 million of free cash flow. It is one of the best transportation stocks to buy heading into 2023.
On December 6, Jefferies analyst Stephanie Moore maintained a Buy rating on XPO Logistics, Inc. (NYSE:XPO) but lowered the price target on the shares to $42 from $70 after adjusting estimates following the spin of RXO, Inc. (NYSE:RXO) on November 1 and the release of historical pro forma financials in an 8-K filed on December 1. The analyst said her Buy rating is based on a view that XPO Logistics, Inc. (NYSE:XPO) will outperform its competition in 2023 after underperformance at LTL in 2022.
According to the third quarter database of Insider Monkey, 37 hedge funds were bullish on XPO Logistics, Inc. (NYSE:XPO), compared to 47 funds in the last quarter. MFN Partners is the largest stakeholder of the company, with 12.6 million shares worth $564.30 million.
Like Union Pacific Corporation (NYSE:UNP), Uber Technologies, Inc. (NYSE:UBER), and Canadian Pacific Railway Limited (NYSE:CP), XPO Logistics, Inc. (NYSE:XPO) is one of the transportation stocks favored by smart investors.
Here is what ClearBridge Mid Cap Growth Strategy has to say about XPO Logistics, Inc. (NYSE:XPO) in its Q3 2021 investor letter:
“The Strategy also gained shares of GXO Logistics following its spinoff from existing holding XPO Logistics. GXO is the largest pure play contract logistics company globally, handling warehousing/distribution, order fulfillment and e-commerce, but its value had been hidden as one of five divisions inside parent XPO.”
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Disclosure: 10 Best Transportation Stocks To Buy Heading Into 2023 is originally published on Insider Monkey.
