We recently compiled a list of the 7 Best Transportation Stocks To Invest In Now. In this article, we are going to take a look at where Union Pacific Corporation (NYSE:UNP) stands against the other transportation stocks.
At the September meeting, the Fed decided to lower its target range for the federal funds rate by 0.5%, bringing it down to 4.75%-5%. The decision is based on progress toward reducing inflation, which remains somewhat elevated but is moving closer to the Fed’s 2% target.
This could be a good sign for the transportation industry as lower rates reduce borrowing costs which could help the industry to access cheaper financing. Moreover, lower rates usually encourage consumer spending and could strengthen the supply chain as lower rates improve manufacturing and trade activities.
Fed Chair Jerome Powell noted that the U.S. economy remains strong, with inflation easing significantly from its peak to an estimated 2.2% as of August, while the core PCE rose 2.7%.
Powell emphasized that while the labor market has cooled, with slower job gains and a higher unemployment rate, it is no longer a source of inflationary pressure. The Fed expects inflation to reach 2% in the coming years. It also noted that wage growth has moderated.
Transport Industry Growth Drivers: Manufacturing Output and Consumer Demand
According to a report by Atradius, global transportation and logistics are expected to grow steadily in the coming years, due to rising manufacturing output and consumer demand. The sector is projected to expand by 3.8% in 2024 and 4.0% in 2025, supported by a European recovery, which will strengthen the industry. Decreased oil and fuel prices should relieve some cost pressures, while the impact of the Red Sea crisis will keep freight rates high but likely moderate with the addition of new ships.
The U.S. sector is expected to expand by 2.7% in 2024, supported by strong consumer demand and infrastructure investments, while China’s logistics industry is forecasted to grow by 4.8% due to rising imports, exports, and e-commerce demand. India’s transportation sector is set for significant growth at 12%, fueled by increased middle-class spending. Japan’s industry will see 5.9% growth, driven by recovering industrial production.
On the other hand, in the Eurozone, transportation growth will be slower, at 0.6% in 2024, before accelerating to 2.7% in 2025, while Germany faces a 1.3% decline in 2024. The UK’s transport sector remains challenged by weak business sentiment and labor shortages.
Our Methodology
For this article, we used transportation ETFs to identify nearly 40 stocks and then narrowed our list to the 7 stocks most widely held by institutional investors. The best transportation stocks to invest in are listed in ascending order of their hedge fund sentiment, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An intermodal container train winding through a rural landscape.
Union Pacific Corporation (NYSE:UNP)
Number of Hedge Fund Holders: 82
Union Pacific Corporation (NYSE:UNP) operates one of the largest freight railroad networks in the United States and primarily serves the western half of the country. It is the parent company of the Union Pacific Railroad, a leading freight carrier that plays a significant role in the transportation of goods across the U.S. It holds a dominant position in rail freight transport west of the Mississippi River. It is one of the best transportation stocks to invest in.
The company has expanded over the years through strategic mergers and acquisitions, including the Missouri Pacific Railroad, the Southern Pacific Transportation Company, and the Chicago and North Western Railway. The company’s rail network is important for transporting agricultural products, industrial goods, and energy resources across the nation.
On September 20, TipRanks reported that BMO Capital’s Fadi Chamoun reaffirmed a Buy rating on Union Pacific (NYSE:UNP) with a $275 price target. The analyst sees strong growth potential for the company if the freight market improves and praised the company’s leadership and operational focus.
Chamoun believes that the company’s conservative growth estimates may be too cautious, which could result in better-than-expected earnings. Despite minor adjustments to its buyback plan, the analyst’s outlook remains positive.
On the same day, several other analysts maintained a Buy-equivalent rating on Union Pacific’s (NYSE:UNP) stock. Jonathan Chappell from Evercore ISI and RBC Capital analyst Walter Spracklin maintained a Buy rating on the company with a price target of $254 and $275, respectively.
In Q2, 82 hedge funds had stakes worth $4.46 billion in Union Pacific (NYSE:UNP). With 6.14 million shares worth nearly $1.4 billion, Fisher Asset Management is the company’s most prominent shareholder, as of June 30.
Overall UNP ranks 2nd on our list of the best transportation stocks to invest in now. While we acknowledge the potential of UNP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is promising and trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.