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 Uber Technologies, Inc. (NYSE:UBER) 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).
A close up view of a hand holding a smartphone, using a ride sharing app.
Uber Technologies, Inc. (NYSE:UBER)
Number of Hedge Fund Holders: 145
Uber Technologies, Inc. (NYSE:UBER) is a global leader in ride-hailing, food delivery, and freight services, among other things. The company revolutionized urban transportation by connecting passengers with drivers through a mobile app after it was founded in 2009. It operates in over 70 countries and across 10,000 cities, with millions of daily trips.
The company has become the largest ride-sharing platform worldwide and remains a dominant force in the tech and transportation sectors. Moreover, the company is also making strides in autonomous driving. In 2023, Uber (NYSE:UBER) partnered with Waymo, a subsidiary of Alphabet, making Phoenix the first city where Uber users can access Waymo’s self-driving cars and has since been expanding this partnership to other states.
On September 13, the companies announced that they would launch their autonomous ride-hailing in Austin and Atlanta in 2025. The ride-hailing company is also collaborating with other companies such as Cruise and Wayve to extend its autonomous rides offerings.
Uber (NYSE:UBER) takes the top spot on our list of best transportation stocks to invest in as its stock was held by 145 hedge funds in Q2, at a combined value of $8.7 billion. As of June 30, Altimeter Capital Management is the company’s largest shareholder with 13.515 million shares worth $982.274 million.
Uber (NYSE:UBER) and Darden Restaurants recently signed an exclusive multi-year partnership, starting with Olive Garden in late 2024. The agreement will allow customers to order delivery directly through Olive Garden’s website and app, with Uber Direct handling the deliveries. A pilot program at select Olive Garden locations will launch in late 2024, with plans to expand nationwide by May 2025.
In a CNBC interview, Morgan Stanley’s Brian Nowak saw this as a positive development for Uber (NYSE:UBER) and said that the company’s delivery platform is part of a larger strategy to expand restaurant options and increase delivery volume. It aims to maximize the utilization of its courier fleet by driving more orders through the platform.
He added that this partnership also allows restaurants to gauge the potential for increased demand as more food delivery shifts from offline to online. With only a small percentage of restaurant spending currently online, the ride-hailing company sees significant growth potential in the coming years as more dollars transition to digital platforms.
We also posted a bull case around Uber (NYSE:UBER) on September 12, you can check it out here: Uber Technologies, Inc. (UBER): A Bull Case Theory.
RiverPark Advisors stated the following regarding Uber Technologies, Inc. (NYSE:UBER) in its first quarter 2024 investor letter:
“Uber Technologies, Inc. (NYSE:UBER): UBER was a top contributor in the quarter following better than expected 4Q23 earnings and 1Q24 guidance. Gross bookings of $37.6 billion were up 22% year over year. Mobility gross bookings of $19.3 billion grew 29% over last year driven by a combination of product innovation and driver availability. Delivery gross bookings of $17 billion were up 19% from last year and continued to be strong throughout the quarter. 4Q Adjusted EBITDA of $1.3 billion, up $618 million year over year, was better than management’s guidance of $1.2 billion, and the company generated $768 million of free cash flow, up from a cash loss of $303 million last year. Management guided to continuing growth in 1Q Gross Bookings (20% growth) and Adjusted EBITDA (of $1.3 billion). The company hosted a well-received analyst day in February during which it guided to three year compounded annual growth rates for gross bookings of mid-to-high single digits and EBITDA of 30-40%, both above investor expectations. The company also guided to free cash flow conversion of 90% of EBITDA.
UBER remains the undisputed global leader in ride sharing, with a greater than 50% share in every major region in which it operates. The company is also a leader in food delivery, where it is number one or two in the more than 25 countries in which it operates. Moreover, after a history of losses, the company is now profitable, delivering expanding margins and substantial free cash flow. We view UBER as more than a ride sharing and food delivery service; we also see it as a global mobility platform with 142 million users (by comparison, Amazon Prime has 200 million members) and the ability to penetrate new markets of on-demand services, such as package and grocery delivery, travel, and hourly worker staffing. Given its $5.4 billion of unrestricted cash and $4.8 billion of investments, the company today has an enterprise value of $165 billion, indicating that UBER trades at 21x our estimates of next year’s free cash flow.”
Overall UBER ranks 1st on our list of the best transportation stocks to invest in now. While we acknowledge the potential of UBER 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.