The global economy may be trying to dodge potholes, but three U.S. trucking stocks that carry goods among Mexico, the U.S. and Canada look well positioned for steady growth.
Analysts are bullish on shares of Landstar System (LSTR), Marten Transport (MRTN) and P.A.M. Transportation Services (PTSI) — three diverse industry players that are astride some of the most positive trends in trucking.
They are all benefiting from the North American Free Trade Agreement.
Trucks carried 66.5 percent of NAFTA-related freight in the U.S. as of March and continued to be the most heavily utilized mode for moving goods among the U.S., Mexico and Canada, according to the Department of Transportation.
Trucks accounted for $28.4 billion of the $44.6 billion of imports — 63.7 percent — and $26.4 billion of the $37.9 billion of exports — 69.7 percent.
P.A.M.’s Mexico division is among its most profitable, said Daniel Cushman, the trucking company’s president, when he reported record fourth-quarter and 2015 earnings earlier this year.
Marten, meanwhile, benefits from being a leader in specialty temperature-sensitive truckloads. The company transports and distributes food and other consumer packaged goods in the U.S., Canada and Mexico on an expedited basis.
Transportation analysts at Stifel, Nicolaus & Co. have a “buy” rating on both Marten and P.A.M.
“All of the pieces of the puzzle are falling into place,” wrote John Larkin, a Stifel analyst, and his colleagues in a recent report to investors.
They said more regulations from the Obama administration, tighter insurance requirements and a chronic shortage of drivers that limits shipping capacity could translate into higher cargo hauling prices.
“We suspect that supply/demand tightness will become increasingly apparent as we push deeper into 2017,” the analysts said.
That’s why they think trucking stocks could be a good investment.
Still, Landstar recently cut its 2016 earnings-per-share guidance to between 66 cents and 70 cents per share, down from its previous estimate of 70 to 75 cents a share on weaker-than-expected pricing and revenues this year.
That hasn’t spooked S&P Capital IQ analyst J. Corridore, who is maintaining a strong “buy” rating on the stock.
“We are encouraged by strong volume trends and expect pricing to pick up as we move through the year,” Corridore said. “We continue to like LSTR’s asset-light business model, and see LSTR well positioned for growing demand.”
One reason is that Landstar shares a lower-cost business model with P.A.M.
Both companies have cut investment in fixed assets by shifting toward independent owner-operator drivers and commissioned sales agents. That strategy is unlike traditional trucking companies that own their fleets and incur driver salary and benefits costs.
P.A.M also leases trucks to drivers, giving them an opportunity to own a business without incurring capital equipment costs.
Further down the road, Morgan Stanley Research believes trucking companies will benefit from the advent of “intelligent” trucks. These vehicles can be equipped with advanced driver assistance technology such as lane-departure warnings, automatic emergency braking, night vision and adaptive cruise control. These technologies could reduce insurance expenses by 10 percent to 20 percent and increase fuel economy by 5 percent, according to the investment bank.
“We believe commercial trucking is on the cusp of a generational shift in profitability driven by emerging technologies like intelligent trucks,” Ravi Shanker, a Morgan Stanley Research analyst, wrote in a recent investor report.
Longer term, Shanker sees new technology allowing trucks to “platoon,” traveling in a tightly contained, digitally connected pack of two to five vehicles. Platooning would trim wind resistance, increase fuel efficiency and could ultimately reduce labor costs with the advent of driverless trucks.
As of trading Tuesday, Landstar shares had risen 8.61 percent year-to-date. Marten was up 2.97 percent, and P.A.M. was up 6.52 percent.