How to evaluate top transportation stocks
You’ll see some commonalities if you invest in transportation stocks. To assess how these companies will fare, keep the following in mind.
Transportation companies use a lot of energy to get things where they need to go. They’re therefore sensitive to crude oil prices and fuel costs. Whether they use jet fuel for planes, diesel for trucks and trains, or a combination of electricity and natural gas to run updated equipment, the best transportation companies seek to be as fuel-efficient as they can be.
It’s expensive for transportation companies to buy the equipment they need. Financing purchases through long-term debt can be smart, but the best companies keep their debt levels from getting unsustainably high.
When the economy is strong, transportation companies tend to do well, because plenty of people and businesses want to ship things. But shipping demand can fall dramatically during tough economic times. Investors have to get used to the ups and downs of the transportation industry in response to changing conditions in the global economy.
It’s common for several companies to fight for the same group of customers. For instance, even just in the U.S., you’ll find carriers like American Airlines Group (NASDAQ:AAL), Southwest Airlines (NYSE:LUV), and JetBlue (NASDAQ:JBLU) fighting against Delta and their other peers. With airlines, comparing how full each company’s planes are and whether they’re making profits can tell you a lot about which players are strong and which are weak. Similar looks at key metrics like capacity and profitability in other parts of the transportation sector can be equally valuable in assessing whether one stock is better than another.