Shipping Stocks: The Backbone of Commerce
The shipping industry is the backbone of the global economy. Over 90% of world trade is transported via shipping, and shipping stocks generally do well when economies are expanding. Both retailers and wholesalers rely on supply chains to keep their businesses running. With so many businesses using them to transport their goods, shipping companies are often big beneficiaries of a good economy. Many shipping companies are stable businesses whose stocks have little volatility. Many pay dividends, so your money will grow even if the stock price stays flat. Investing in shipping stocks can provide you with a defensive position that will collect dividends and, ideally, see relatively little volatility. However, there are big gains to be made on shipping stocks of small-cap companies with solid growth outlooks.
- New Watchlist: Best Stocks Under a Buck, click here to read it now.
Best Shipping Stocks: Value or Growth?
Shipping stocks represent a variety of businesses operating in different market sectors. Marine freight, trucking, and courier services are all considered shipping businesses. Each of these sectors has unique influences and is affected by different economic circumstances. For example, a domestic trucking company may not be affected by a global economic slowdown the same way an international shipping business would be. Before building a position in one of these stocks, it’s important to realize what segments of the shipping industry the business operates in. Some shipping stocks are more suited to growth while others are considered to be value stocks. Companies like FedEx trade at low multiples and pay steady dividends, so they would be considered to be value investing plays. The small-cap shipping stocks on our list have more opportunity for growth but have greater risks, as well.
Best Shipping Stocks
FedEx is a full-service shipping company. They will ship anything to anywhere for the right price. Though best known for its courier and delivery services, FedEx has many profitable businesses. FedEx has an enormous air fleet, 50,000 dropbox locations, and over 27,000 vehicles in their freight fleet alone. This is a stable company with a huge global presence, and they’re not going away anytime soon. FedEx is a defensive stock with large institutional holdings. The company has been around for decades and has seen its share of economic crises, and they always weathered the storm. FedEx is a proven winner and its stock is reasonably valued. The stock pays a dividend that yields about 1.4% and currently trades for less than 10 times earnings.
United Parcel Service ( NYSE: UPS)
One of the largest shipping companies on the planet, UPS handles more packages than almost anyone. UPS shipped roughly 17 million average parcels per day in 2017. FedEx moved only 10.5 million. Margins are low in the shipping business, so volume is very important to earnings growth. UPS can reach the most recipients on the planet, and they have a huge network of assets. All of that volume means more revenues for UPS. The company looks to boost profits by driving low-margin services, like express and ground shipping. This is a healthy company with a great infrastructure of assets. FedEx pays a steady dividend with a yield of over 3 percent. It’s a good defensive stock with a large institutional ownership interest.
XPO Logistics ( NYSE: XPO )
Founded in 2011, XPO Logistics operates expedited freight shipping and transportation businesses in the U.S. and abroad. Since its founding, the company made several acquisitions to improve its transport network. XPO curtly ceased M&A activity a few years ago, when management shifted gears and began integrating existing operations to improve profitability. The Street applauded the change in direction because XPO had difficulties with margins and leverage as a result of their M&A shopping spree. The company recently announced that they lost a major client due to insourcing. The loss will cost the company approximately $600 million in lost revenue. Share prices fell after the announcement, but many analysts believe XPO still has a good outlook for growth in 2019.
Matson ( NASDAQ: MATX )
This is the first company on our list that works primarily in the maritime shipping sector. Matson operates primarily in the Pacific Ocean. They ship dry commodities, cars, livestock, retail merchandise, and other various cargo to domestic and international ports. Matson is a small-cap company with a market cap of less than $1.6 billion. It’s a tiny company in comparison to the shipping giants. However, there is potential for growth and the company is financially healthy. Though small, Matson offers a potentially profitable means of investing in the shipping sector.
Union-Pacific Corp. ( NYSE: UNP )
Union Pacific Corporation operates a large network of railroads in the United States. Railroads are still a huge part of the shipping industry. About 42 percent of intercity freight is transported via rail, and rail traffic tends to increase as the economy grows. Union-Pacific runs over 32,000 miles of track that connect ports on the Pacific Ocean & Gulf of Mexico with other U.S. regional rail networks. In January 2019, the company named a new Chief Operating Officer with a reputation for cost-cutting and the stock jumped over 8 percent. If the long-awaited China-U.S. trade deal ever goes through, Union-Pacific stock will likely see some gains on the news. Plus, Union-Pacific pays a yearly dividend with a yield of over 2 percent.
- Click Here to see our top 5 penny stocks watchlist for this month.
Landstar Systems Inc. ( NASDAQ: LSTR )
One of the nation’s largest provider of 3rd party logistics, Landstar offers logistics for both international and domestic shipping and transport. They also have an insurance business that underwrites some of the risks associated with the company’s network of independent contractors. Landstar doesn’t own their own fleets, they are a shipping broker who use a network of contractors to coordinate and fill customer orders. The truck brokerage business may grow even faster than the overall transport market in the coming years. Landstar should expand their revenues from their brokered trucking business as demand for this service rises. However, a nationwide shortage of drivers looks to serve as a headwind for this company. Experts predict that recruiting qualified operators will become more difficult in the next few years. The company pays a very small dividend that yields less than one percent.
Best Shipping Stocks: Final Thoughts
We’ve shown you a few different ways to make plays in shipping stocks. These are just a few of the many companies that operate in the shipping industry. As you can see, there are many types of specialized businesses that are classified under shipping stocks. If you believe in the shipping industry, determine the specific aspects of the industry that you think will prosper. In our ranking for the best shipping stocks, there are large-cap companies like FedEx and UPS that make for great defensive positions. They will net you decent dividends just by holding onto them. However, smaller niche businesses have better growth outlooks. Always be sure to research companies thoroughly before you buy. With some strategy and foresight, these shipping stocks could end up as the best-performing stocks in your portfolio.