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Investing in transportation stocks
The transportation industry tends to perform well in strong economies, but other volatile sectors can force it to make sharp turns.
Investing in the transportation industry is a great way to diversify your portfolio across several industries including airlines, railroads and trucking. But because it’s tied to several external industries including oil and gas, transportation stocks can be very volatile.
Government regulations can also deliver a major impact. So can world events like the coronavirus, which rattled the transportation industry in 2020.
What are transportation stocks?
Transportation stocks are part of various companies that move people, products and goods all over the world by land, sea or air. They make up a diverse industry containing several different types of companies including:
- Air freight companies
- Trucking firms
- Marine shipping companies
- Logistics companies
- Service providers that help transportation firms such as airport operators and marine ports
The transportation industry is a big part of everyday life. Transportation companies get you to where you need to go, food to your supermarket and clothes to your local stores.
Why invest in transportation stocks?
In a global economy, people need to move goods, services and talent around. This is where the transportation industry comes in. And because a vast number of companies are involved, transportation stocks can be seen as clear avenues to portfolio diversification.
The transportation industry is part of the wider industrial sector. That’s why its performance is strongly tied to the state of the overall economy. These companies tend to perform well under robust economic conditions.
This performance can be an indicator that businesses are gaining speed and moving goods and services around to meet demand. But the transportation industry can be highly speculative and hard to predict.
Risks of investing in transportation stocks
Because the transportation industry is so vast, transportation stocks can be affected by the performance of several other sectors. For instance, transportation companies rely heavily on fuel to get the job done. That includes everything from diesel to jet fuel.
If fuel prices rise, so can the costs for different transportation companies. That in turn can cut profits as well as stock prices. An active investor may not benefit from transportation stocks in a difficult economy.
Moreover, trade disputes between countries can severely affect the movement of goods and people from one place to another – along with the companies responsible for making this movement happen. Government regulations can have the same effect.
Government regulations fueled by COVID-19 changed the transportation industry in 2020. Cities around the globe limited transportation services, placed travel restrictions and implemented social distancing mandates. This severely affected the movement of people, and companies like airlines suffered.
A study published on Statista says, “For the week starting November 9, 2020, the number of scheduled flights worldwide was down by 46.5 percent compared to the week of November 11, 2019.”
With uncertainty surrounding the state of COVID-19 restrictions as well as medical advances, the pandemic’s future impact on the transportation industry remains uncertain. A report by Deloitte even went as far as to say, “Commuting and traveling patterns may not recover to their pre–COVID-19 state once lockdowns are lifted.”
With an industry as widespread as transportation, there are many stocks to choose from. Here is a brief list of your investment options.
- Air Canada (TSX: AC)
- Element Fleet Management Corp. (TSX: EFN)
- Canadian Pacific Railway Limited (TSX: CP, NYSE: CP)
- Brookfield Infrastructure Partners L.P. (TSX: BIP-UN, NYSE: BIP)
- Canadian National Railway Company (TSX: CNR, NYSE: CNI)
- Union Pacific Corporation (NYSE: UNP)
- United Parcel Service, Inc. (NYSE: UPS)
What ETFs track the transportation category?
You don’t need to limit your investments in transportation to stocks. You can also buy shares of exchange-traded funds, or ETFs, which invest in diversified baskets of transportation of stocks. Here are some examples:
- S&P Transportation ETF (NYSEArca: XTN)
- iShares Transportation Average ETF (BATS: IYT)
- First Trust Nasdaq Transportation ETF (NasdaqGM: FTXR)
- Direxion Daily Transportation Bull 3X Shares (NYSEArca: TPOR)
- SPDR S&P Kensho Smart Mobility ETF (NYSEArca: HAIL)
- U.S. Global Jets ETF (NYSEArca: JETS)
Compare trading platforms
Whether you’re investing in transportation stocks or ETFs, you’ll need a brokerage account. Because key differences such as fees can affect your returns, you should carefully review your options.
Investing in transportation stocks can be a lucrative way to diversify your portfolio. But strains in the overall economy can derail the transportation industry.
Do your due diligence as an investor when considering transportation stocks, especially in the midst of COVID-19. Also compare your brokerage options before you begin trading stocks.
Frequently asked questions
Are pipeline stocks part of transportation stocks?
Technically, no. Even though pipelines transport resources like natural gas and crude oil, pipeline stocks are energy stocks.
Are there transportation stock mutual funds?
Yes. Examples include the Fidelity Select Transportation Portfolio (Nasdaq: FSRFX) and the Rydex Transportation Fund (Nasdaq: RYTSX).
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