4 Transportation Stocks To Gain From Oil's Bear Market Entry
Zacks Investment Research | Jun 05, 2019 09:21PM ET
Oil entered the bear market on rising U.S. inventories and prolonged trade war fears. Investors can buy transportation stocks at the moment, which are set to gain from oil’s price decline.
Oil Enters Bear Market
On Jun 5, West Texas Intermediate (WTI) crude slid 3.4% to settle at $51.68 a barrel on the New York Mercantile Exchange. WTI crude registered a 22% drop from its most-recent high of $66.30 (Apr 23).
With this, oil stepped into bear market, which is basically a 20% drop or more in price performance from the latest high. Per Dow Jones Market Data, the average bear market for crude oil is about 60 trading days.
Oversupply, Trade Fears Tug at Global Energy Demand
The major culprit behind this drop is the rise in domestic crude inventories. The Energy Information Administration’s (EIA) data brought into limelight a weekly U.S. crude supply spike of 6.8 million barrels for the week ended May 31, which is the largest since the 9.9 million-barrel increase for the week ended Apr 26.
This puts domestic crude inventories, barring those in the Strategic Petroleum Reserve, at a total of 483.3 million barrels. According to the EIA, the figure indicates a 6% rise from the five-year average during this time of the year. The EIA also noted that gasoline inventories added 3.2 million barrels and distillate stockpiles rose by 4.6 million barrels in the week ended May 31.
The robust increase in U.S. inventories is the result of a sharp climb in imports along with a record weekly high in oil production. In fact, such oversupply indicates weaker global energy demand, which is being fueled by the United States’ many ongoing trade conflicts.
The trade war with China has led to a slowdown in both countries’ manufacturing activities, which is impacting the demand for oil.
If manufacturing activities wind down further, the already declining demand for energy shall continue to do the same. And with no U.S.-China trade deal anytime soon, oil prices could only remain low in the near future. United States’ impending tariffs on Mexican goods are a tailwind for oil prices as well.
In fact, Morgan Stanley (NYSE:MS) cut its oil price forecasts this week, mentioning a "sharper-than-expected slowdown in demand."
Transportation Stocks to Benefit From Oil’s Dip
In a scenario such as this, investors could consider buying transportation stocks. Why? This is because transportation companies incur significant costs in fuel, which is a major input for their business. Now that spot price of oil is down, these companies would save on fuel expenses, which means lower transportation costs and profit boost.
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This puts stocks from airline, trucking and shipping in the forefront for gains.
Our Choices
We have chosen four transportation stocks that you could consider adding to your portfolio. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Global Ship Lease, Inc. (NYSE:GSL) is an owner and charterer ofvarious sizes under fixed-rate charters to container shipping companies. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has risen 3.3% over the past 60 days. The company’s stock price has outperformed the Zacks the complete list of today’s Zacks #1 Rank stocks here .
SkyWest, Inc. (NASDAQ:SKYW) operates a regional airline in the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 4.1% over the past 60 days. The company’s stock price has outperformed the Zacks Transportation – Airline Market on a year-to-date basis (+36.2% versus +2.2%).
Radiant Logistics, Inc. (NYSE:RLGT) operates as a third-party logistics and multi-modal transportation services company. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 4.3% over the past 60 days. The company’s stock price has outperformed the Zacks Transportation – Air Freight and Cargo Market on a year-to-date basis (+51.3% versus -0.4%).
Marten Transport, Ltd. (NASDAQ:MRTN) operates as a temperature-sensitive truckload carrier for shippers in North America (U.S., Canada and Mexico). The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 2.8% over the past 60 days. The company’s stock price has outperformed the Zacks Transportation – Truck Market on a year-to-date basis (+11.2% versus +0.4%).
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