The dynamic, complicated, and unfixed nature of the transportation industry distinguishes it from the broader economy. Because commodities flow through networks at varying speeds and over varying distances, the sector and best transportation stocks might be difficult to comprehend for an investor accustomed to linear logic, such as in industry.
Transportation businesses, on the other hand, are classified as cyclical equities on the stock exchange. When economic conditions are favourable, shareholders benefit. On the other side, they are extremely vulnerable to market slowdowns.
Tenderness of the transportation sector in the investment market
The trucking sector is a niche market for investment funds. For example, in Europe, deals in this sector represent only a small part of the assets owned by the funds.
But with increasing digitization, the position of the transportation sector in the global investment market is improving. And above all, the use of financial engineering tools offered by investment funds is a great help for carriers. Transportation companies need significant financial resources to purchase the equipment they need. Many choose to finance these capital expenditures with long-term debt, but others turn to private equity funds. Investment funds also participate in several types of transactions that represent a close interest: capital investment, acquisition, transfer, disposal. In addition to a purely financial role, funds can provide advisory services in cases of transfer or takeover of a company by its senior managers.
Is it worth investing in aviation?
In recent years, the aviation sector has not been doing well. This is also affected by the fuel crisis and the tourist travel crisis. Therefore, it can be assumed that demand for passenger air transportation fell by 2/3 compared to previous years, which is the sharpest decline in transportation in the history of aviation. This problem exists not only in passenger transportation, but also in cargo transportation. Many companies in the world faced the problem of rising prices of goods, or even the impossibility of delivering them.
For example, the COVID 19 pandemic was not without consequences. The total lockdown also hit other segments of the global transport industry. But the transport industry, and especially aviation, has a large enough potential to withstand such fluctuations. And in view of this potential, we can predict that with each new year this industry will increase by approximately 50% from the previous one.
Problems in sea freight transportation
The global sea freight market also experiences difficult times from time to time. And just in moments of recovery and acquisition of larger volumes of transportation, the shares of transport companies, which, for example, lost catastrophically last year, can grow significantly. So, as you follow this field, for example, on the Gainy service, you can have in mind the best transportation stocks in the field of sea transportation.
How can investors invest in the transportation market?
ETF
Investors can choose from a wide range of ETFs focused on various areas of transport and transportation. There are even quite specific variants. For example, Breakwave Dry Bulk Shipping invests in cargo charter futures. If sea transportation grows, so do the fund’s shares. If you plan to invest in simpler instruments, you can choose an ETF that invests in companies in the transport industry.
Every year the fund shows quite good profitability ratings, but the dividends it pays are not the highest in the market. In addition, the fund maintenance fee is a significant part of the dividends, so the yield can vary.
SPDR S&P Transportation
Another fund focused on this sector is SPDR S&P Transportation. Among the largest companies in which the fund invests are several global and regional American air carriers and the Avis car rental service. Also, like the previously mentioned fund, this one shows quite high yield ratings and has a similar dividend payout situation.
We can also divide investment areas by industry.
- Railway
For example, we can consider one of the “heaviest” players in the rail transportation market. Union Pacific Corporation is the largest American railroad company. It owns more than 51,000 kilometers of railways in 23 states and 8,300 locomotives.
Among the key advantages of the Union Pacific Corporation is the connection of the Pacific coast with the Gulf of Mexico. All this is reflected in financial indicators. And even during the crisis years for other industries, the railway industry survived without any major upheavals, and the losses of many other industries, the losses are not significant.
- Automobile transportation
Potentially interesting for investors is J.B. Hunt Transport Services, a leader in the US in the transportation of goods by road. The company provides logistics services for the transportation of goods and, by it, acts as an intermediary with other operators.
The advantages of the company are its innovativeness. In addition, the company is entering into a coalition with General Motors and Navistar on the development of a hydrogen engine. The company’s disadvantage is a high share price, which has reached historical highs.
- Aviation industry
Companies in the aviation industry are quite sensitive to fluctuations in industries that are directly related to them, for example, in the tourism industry. The airlines already experienced its peak declines and began to recover very fast.
Companies in the aviation industry are quite sensitive to fluctuations in industries that are directly related to them, for example, in the tourism industry. The airlines already experienced its peak declines and began to recover very fast. There are also frequent cases when airlines become beneficiaries of state support as part of economic stimulus packages. And this also affects the value of shares.
As you can see, the field of transportation is still an attractive area for investment because it is cyclical and can become quite profitable if favorable economic factors coincide. But this must be constantly monitored, and even an experienced investor cannot do without a monitoring service such as Gainy. The same monitoring and the right time of investment can bring you profit in the field of transportation.
