The weakness provides a great opportunity for investors to enter the sector or add to their existing investments, as the shares can only go up from here, according to several Wall Street analysts.
"The recent disconnect between weak stock performance and strong underlying freight trends provide investors an opportunity to increase transport exposure, ahead of seasonally strong June and September/October peak," Robert W. Baird analyst Jon Langenfeld wrote in a recent note.
Trucking stocks, which have been on a long drive since the beginning of this year with an upbeat mood in the freight market, backtracked a bit last month as recent uncertainty in the global markets hit them.
Industry indicators, however, remain strong and participants across the industry have signalled an improvement in demand.
The trucking industry went through a tumultuous period in the last couple of years as volumes dropped and excess capacity strained margins. The No.1 U.S. trucker YRC Worldwide narrowly avoided bankruptcy last year after an elaborate debt exchange offer.
Credit Suisse sharply increased its outlook for freight growth in 2010 to 7.5 percent from its prior view of 2.2 percent, citing strong manufacturing growth.
"Valuations for the group are reflecting a recovery in earnings," said KeyBanc Capital's Todd Fowler, adding that valuations have become more reasonable in the past several weeks due to the pullback.
"This is a very good time for people looking to circle back in the group, as we continue to see underlying strengths in the demand trends," said Fowler, who does not have a "sell" rating on any of the 15 trucking and logistics stocks he covers.
Truckload pricing, along with other fundamentals, has been on the mend through the year as freight volumes improved and excess capacity left the market through bankruptcies.
Most transportation companies hardly have any exposure to Europe. FedEx , UPS and a few railroads have minimal business in Europe, which is now mired in a debt crisis.
Trucking Ahead of Other Transports
Analysts recommend buying trucking stocks ahead of other transportation sub-sectors such as rails, logistics and intermodal, as the improving pricing fundamentals in trucking stocks are too difficult to ignore.
Rails have modestly underperformed the S&P 500, while logistics and intermodal still have some catching up to do on the pricing front.
"We have actually been surprised with the strength that we have seen within the trucking market," said KeyBanc's Fowler.
Companies are beginning to add new equipment, consider mergers and acquisitions, boost payout and hire more employees. (Reuters)
