It’s Time To Buy These Truck Stocks

 | Oct 06, 2020 01:09AM ET

h2 Demand For Trucks Surges On Tightening Capacity

The transportation sector and in particular the trucking industry is beginning to look very interesting. A perfect storm of conditions worsened by the pandemic has capacity tightening, demand rising, spot-prices for hauling increasing, and fleets struggling to keep up. Carriers like JB Hunt Transport Services (NASDAQ:JBHT) are well-positioned to take advantage of the conditions, but so too are the truck-makers. The latest data from FTR, a transportation industry intelligence service, shows demand for trucks surging and that is an opportunity for investors today.

Don Ake, vice president of commercial vehicles for FTR commented:

“The Class 8 truck market continues to recover faster and better than expected. This strong order volume suggests fleets believe there will be steady freight growth going forward. Rates have improved, so carriers have the cash, and now they also have the confidence. When you combine those two factors, orders tend to surge.

According to FTR demand for class 8 semi-trucks surged 55% from the prior month and 160% from the prior year. The rise in demand shows not only the strength of the market but confidence in the recovery. In terms of investability, many of the truck-making companies are trading at a substantial discount to the broader market and pay nice dividends.

h2 Cummins Is Ready To Rip Higher/h2

Cummins Inc (NYSE:CMI) manufactures and sells diesel and natural gas engines for the commercial market worldwide. The company is not quite the value some of its peers are, trading at 18X earnings, but it is a value compared to the broad market and pays a substantially higher dividend. Cummins is a dividend-grower with 10 years of annual increases and yields nearly 2.5%. The company has not yet increased the distribution for this year, it’s been five quarters since the last, but the outlook is good that increases will resume in the not-too-distant future.

The analysts are still only neutral on this stock but they have been warming up over the last month to 6 weeks. Since the last earnings report the stock has received a minimum of 20 price target increases to include no few rating upgrades. The current consensus shows this stock is trading a premium but, when compared to the more recent and higher targets there is a 4% upside predicted and I think that is too low. This is a lagging sector in terms of the economic recovery and one that will see massive upgrades in the near future.