The entire transportation and logistics space is more influenced by macroeconomic performance than in the past, says John L. Barnes III, Managing Director at RBC Capital Markets. He thinks, however, the U.S. economy has reached a bottom and won’t double dip, and rail, airfreight or truck volumes are not expected to fall further, leading the award-winning analyst to place a risk-on trade in the sector.
“Given that we like the risk-on trade, we basically like anything that’s got a little hair on it. The dirtier the story, the better, the more operating leverage to a rebound in the economy, the better. I want that sharp explosive earnings growth when the volumes begin to turn,” Barnes said.
“Our favorite names in the space right now? We like Ryder (R) on the equipment leasing and logistics side; Swift Transportation (SWFT) on the truckload side; Con-way (CNW) in LTL; Atlas Air (AAWW) in airfreight; and Kirby Corporation (KEX) on the barging side. I think those are the names where you’re going to get that explosive growth as the economy begins to recover and as volumes begin to move to the upside.,” Barnes said.
Barnes says he wouldn’t be surprised if transportation companies outperformed expectations in the third quarter, especially after analysts have reduced expectations in the space. “They are not going to be great results, but will likely be better than the sharply lowered expectations,” he said.
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