It is no secret that the stocks belonging to the widely-diversified transportation sector have been dealt a body blow by the coronavirus pandemic. The space, which encompasses airlines, railroads, truckers, shippers and package delivery companies to name a few, has been shaken up by the extensive travel restrictions imposed to break the chain of this highly contagious disease.

Headwinds Affecting the Sector

Within the transportation sector, airline stocks have been the worst-hit due to the sharp drop in passenger revenues. Due to shrinking top lines, heavyweight airlines like Delta Air Lines DAL and United Airlines UAL incurred losses in the June quarter.

Railroads have also been hurt by the declining overall volumes as supply-chain disruptions due to the pandemic crippled the shipment of goods not only across the United States but also globally. The worldwide health emergency also spelled doom for the shipping industry, which is responsible for transporting the majority of goods involved in the world trade, which took a severe hit. As a result, multiple sailings are being canceled and vessels, rapidly idled.

Some Bright Spots to Take Note of

Despite the above-mentioned downsides, there are a few favorable factors prevalent in this sector. The surge in e-commerce demand during the current scenario is one such tailwind. As a result of the pandemic, people are mostly staying indoors and avoiding venturing out unless absolutely necessary, despite the easing of restrictions. Evidently, e-commerce — the method of buying and selling goods and services via a software platform — is gaining further momentum as the need for door-to-door delivery of essentials during this unprecedented crisis is rising.

Notably, United Parcel Service UPS, a package delivery company, outperformed in the June quarter on the back of expanded residential delivery volumes amid the rampant coronavirus outbreak that confined people to their homes. Notably, business-to-consumer shipments soared 65.2{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} year over year. Also, railroads despite dwindling volumes are being aided by the cost-cutting measures and increased efficiencies, courtesy of the precision scheduled railroading model. Similarly, despite being battered by passenger-revenue softness, the focus of airlines on operating cargo-only flights is praiseworthy. Evidently, cargo revenues surged 36.3{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} at United Airlines in the June quarter.

Signs of Recovery Ease Pressure

The fact that the Zacks Transportation sector has appreciated 10.9{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} in the past month, outperforming the S&P 500 Index’s 3.6{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} gain in the same period is indicative of the coronavirus-scarred sector being on the mend.

Some recent developments also point to the fact that things are starting to look better for the sector participants. Recently, the State Department removed the warning on U.S. citizens against traveling abroad, thereby boosting travel-focused stocks like airlines.

Moreover, according to the latest Cass Freight Shipments Index report, shipment volumes improved 4.8{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} in July from the June levels, thus driving the trucking stocks particularly in the sector. Also, per data released by ACI Worldwide, e- commerce transactions across the globe rose 19{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} in July on a year-over-year basis.

Transportation Stocks That Should Grace Your Portfolio

In view of the above-mentioned upsides, we believe, transportation stocks currently boast attractive investment opportunities. We thus selected four stocks that currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have bullish current-year earnings estimate revisions despite the pandemic-related woes. You can see the complete list of today’s Zacks #1 Rank stocks here.

Our first pick is the Atlanta-based UPS. The stock presently sporting a Zacks Rank of 1 is flying high on the back of e-commerce driven surge in residential delivery volumes. The Zacks Consensus Estimate for current-year earnings has been revised 20.4{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} upward over the past 60 days.

Our next choice is Landstar System LSTR, an asset-light provider of integrated transportation management solutions. The recent improvement in shipment volumes is a positive for this Jacksonville, FL-based currently Zacks Rank #2 trucking company. The Zacks Consensus Estimate for current-year earnings has been moved 2.8{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} north over the past 60 days.

The Calgary, Canada-based railroad operator Canadian Pacific Railway Limited CP also features on our list. This presently Zacks #2 Ranked company is being aided by factors like upbeat Canadian grain movement and low costs. The Zacks Consensus Estimate for current-year earnings has been raised 7.2{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} over the past 60 days.

Our final choice is another trucking company Werner Enterprises WERN, which is domiciled in Omaha, NE. This currently #2 Ranked company is benefiting from factors like cost-control measures and an uptick in shipment volumes. The Zacks Consensus Estimate for current-year earnings has been revised 15.5{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} upward over the past 60 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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