As the market rally begins to run out of steam, investors should look to areas that may be richer with value. In this piece, we’ll use TipRanks’ comparison tool to narrow in on three names in the transportation space — CP, FDX, and DAL — that analysts praise as “Strong Buys.”
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Undoubtedly, recession headwinds tend to have a direct impact on transportation stocks. That said, the following trio of firms may have enough unique catalysts to offset any mounting macro headwinds to come. Finally, one can’t help but be encouraged by recent market action that seems to be looking well beyond a downturn to a potential recovery.
Canadian Pacific Kansas City (NYSE:CP)
Canadian Pacific Kansas City (or CPKC) formed from the merging of Canadian railway firm Canadian Pacific with Kansas City Southern back in April. Undoubtedly, the historic merger was one of the biggest deals for the rail scene in decades. It effectively created one railway that runs through North America’s three largest nations (Canada, the U.S., and Mexico). Indeed, you just don’t see so many mega-mergers in such a highly-regulated industry these days.
Though it takes time (years) to prove that a merger is truly worthwhile, I am very confident the firm will ultimately be successful as it moves forward with its post-merger plans. If CPKC and its road (or should I say track) ahead is enticing enough for billionaire investor Bill Ackman to hold a concentrated stake (around 11.6% of the portfolio) in Pershing Square’s portfolio, I find it hard to be anything but bullish.
Shares of CP have been relatively flat since peaking back in mid-2021. Though it’s proven difficult to sustain a breakout, I believe it’s just a matter of time before CPKC enjoys its next leg higher. Not only is seasoned rail CEO Keith Creel one of the best top bosses in the railway scene, but the company has a unique opportunity to capitalize on the “near-shoring” trend.
Specifically, Bank of Nova Scotia (NYSE:BNS) analyst Konark Gupta recently noted that “Chinese manufacturers are pivoting to Mexico” for the benefit of being closer to “North American consumers.”
Undoubtedly, near-shoring to Mexico would be a massive (and very unique) win for CPKC since it’s the North American rail that can move goods across the Mexico-U.S. border all the way up to Canada.
The long-term near-shoring opportunity may not be fully appreciated in the share price. While the stock trades at 23.6 times trailing price-to-earnings, above the rail industry average of 19.5 times, given synergies and a potential near-shoring catalyst, I view a premium as warranted.
What is the Price Target of CP Stock?
CP Rail is a Strong Buy, with 12 Buys and four Holds assigned in the past three months. The average CP stock price target of $92.70 implies a 14.8% gain from here.
FedEx (NYSE:FDX)
FedEx is the logistics firm in the middle of a massive comeback after bottoming out along with the market last autumn. The impressive rally has the stock up 77% since its September low and isn’t showing many signs of slowing down.
Undoubtedly, broader market relief is a major driver of the rally, but it’s FedEx’s own solid performance, a bit of change in the C-suite (new CFO John Dietrich), and some weakness from rival UPS (NYSE:UPS) that have likely added to the rally’s strength. Personally, I think FedEx’s management can continue to deliver (sorry for the pun) in the second half, and that has me bullish on the stock.
Undoubtedly, macro headwinds, shifting consumer-spending trends, and all the sorts have weighed on all firms in retail and logistics. Despite the less-than-ideal hand, FedEx has managed to cut costs and improve operating efficiencies as a part of its DRIVE program. Indeed, DRIVE helped drive FedEx to an impressive fourth quarter that saw EPS of $4.94, above the $4.85 estimate.
Though the forecast missed estimates, with adjusted earnings expected to be in the $16.50-18.50 range, shy of the $18.31 estimate, investors don’t seem willing to part with the stock right here. Indeed, there’s a lot going right for a change over at FexEd, and the best may have yet to come!
What is the Price Target of FDX Stock?
FedEx is a Strong Buy, with 16 Buys and four Holds. Nonetheless, the average FDX stock price target of $272.11 entails just 1.4% upside potential.
Delta Air Lines (NYSE:DAL)
Delta stock is now up around 43% from its March lows, thanks in part to what the company sees as a “travel boom.” Nobody knows what the fate of the recovering traveler is as we encounter a potential recession over the year ahead. Regardless, numerous pundits are still upbeat on travel stocks, especially at today’s still-depressed valuations. I’m inclined to stay bullish on the airline stocks as they do their best to return to the ascent after what could be a pick-up in turbulence over the coming months.
Recessions tend to hit the airlines particularly hard. However, a potential recession may not only be “mild,” but it may also see a stock recovery come before GDP has a chance to sink to its lowest point. At this juncture, Delta’s CEO, Ed Bastian, doesn’t see economic headwinds impacting fliers. That could be a big deal as air travel looks to extend its strength into the second half.
At writing, DAL stock trades at 9.6 times trailing price-to-earnings, below the airline industry average of 10.6 times. With a solid risk/reward, capable managers, and a tailwind that may not be so quick to fade, I think it would be wise for investors to stick with the name.
What is the Price Target of DAL Stock?
Delta’s a Strong Buy, with 17 unanimous Buy ratings. Further, the average DAL stock price target of $59.88 entails 30.8% upside potential.
Conclusion
Transport stocks may very well be just getting started, even as recession headwinds begin to mount. At this juncture, analysts expect the most gains from Delta Air Lines out of the three stocks mentioned above.
