Buy 5 Transport Equipment Leasing Stocks To Counter Volatility

 | Dec 19, 2018 07:44AM ET

The transportation sector seems to be poised well not only in the near term but also in the long haul due to robust freight demand on the back of a strong economy. Substantial surge in manufactured and retail goods, massive tax haul and business friendly policies of the government is anticipated to fuel the transportation sector’s growth.

Consequently, companies offering equipment financing and leasing, logistics and supply chain management services to transporters are also likely to perform well in the near future. At this stage, investment in transportation services stocks with favorable Zacks Rank will be a prudent move.

Strong Consumer Confidence

U.S. consumer confidence index for the month of November was pegged at an appreciably high level of 135.7, better than the consensus estimate of 135.4. This indicates consumers are confident that economic expansion will continue in 2019. Significantly, the confidence in the job market remains robust, with unemployment at a near 50-year low.

Consumer confidence is critical to growth of the transport equipment and leasing industry. Borrowing and lending activities increase as consumers tend to spend more in a buoyant economy and tight labor market conditions.

Growth Inducing Polices

As the U.S. economy continues to grow, demand for carriage is also increasing and this momentum is anticipated to sustain in the rest of 2018. The two pro-growth policies of President Trump, namely, significant cut in corporate tax and deregulation are major catalysts to the transportation sector.

Massive reduction in corporate taxes from 35% to 21% has brought corporate tax rate to its lowest level in 78 years. A large part of transporters book much of their revenues within the United States. Consequently, a significant reduction in corporate tax rate borne by these companies would be immediately accretive to cash flow.

Robust Economic Fundamentals

In its second estimate, the Department of Commerce confirmed that the U.S. GDP for the third quarter of 2018 expanded by 3.5%. This implies that the U.S. economy increased 3.3% in the first nine months of 2018, surpassing the target of 3% set by President Trump.

On Dec 14, the Department of Commerce reported that U.S. retail sales grew 0.2% in the month of November. Moreover, the metric for October was revised upwardly from a gain of 0.8% to 1.1%. Retail sales data for the first two months of the fourth quarter indicates strong growth potential for the U.S. economy in the ensuing quarter.

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The Federal reported that U.S. industrial production rose 0.6% in November, marking its highest growth in three months. On a year over year basis, industrial production was up 3.9% in November.

Our Top Picks

The U.S. economy is likely to remain firm in the near term. Things are looking up for the transportation sector as well. This key sector is likely to end 2018 on a triumphant note. Consequently, growth potential of transport equipment and leasing stocks make them lucrative. We narrowed down our choice to four stocks with strong growth potential. Each of these stocks currently carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy).

The chart below depicts price performance of our five picks in the last six months.