Citi Begins Coverage of Transportation Stocks and Names Top Picks by Investing.com

Investing.com — Citi said on Tuesday it has begun researching 19 companies in the transportation and logistics industry, highlighting the sector’s recent struggles but also identifying a potential upside for investors.

The industry has seen a significant downturn, with an imbalance between supply and demand putting downward pressure on freight rates, thus negatively impacting the margins and earnings of transport companies.

This has resulted in the Transportation Index underperforming compared to , with a 0.5% decline so far this year versus the S&P’s 20.6% gain.

“In our view, this weakness presents an opportunity to buy quality companies at reasonable prices with significant potential for earnings growth as the cycle turns,” the analysts wrote.

“Against this backdrop of underperformance, we believe certain transportation and logistics stocks are well positioned to deliver strong relative performance over the next year,” they added.

Citi’s analysis suggests the cyclical downturn in shipping is coming to an end, with current low rates and margins setting the stage for strong earnings growth in 2025 and 2026 as the market recovers.

The company’s positive outlook is further bolstered by the belief that many companies in their coverage have experienced management teams known for disciplined capital allocation and the essential nature of transportation services to the North American economy, which reduces the risk of disruption or replacement.

“In our view, investors should be positioned for a cyclical recovery, with attractive opportunities in companies that are incentivized to realize huge benefits as freight conditions tighten,” Citi analysts noted.

They identified JB Hunt Transport Services Inc (NASDAQ:), Saia (NASDAQ: ), CSX Corporation (NASDAQ: ) and United Parcel Service (NYSE: ) as their top sector picks.

South Norfolk Corporation (NYSE:), Canadian Pacific (NYSE: ) Kansas City, FedEx Corp (NYSE: )., XPO Inc (NYSE: ), TFI International (NYSE: ) and Werner Enterprises (NASDAQ: ), among others, are also included in Citi’s new coverage.

Werner Enterprises is the only stock with a sell rating.