4 Top Value Stocks In The Transportation Sector Right Now

It is well documented that the transportation sector is experiencing a rough phase at the moment. The sector is widely diversified ranging from airline companies to truckers, shippers to railroads, to name a few. Issues like the surge in terror attacks, Brexit vote uncertainty, declining coal shipments and labor problems are affecting stocks in the space, big-time.

The headwinds are primarily responsible for the sector’s unfavorable performance in the second quarter of 2016 compared with the first quarter. According to our latest Earnings Trends report, total earnings per share for the S&P 500 transportation players decelerated in double digits (12.4%) year over year in the second quarter. In the first-quarter the bottom-line had expanded 3.3%. As per the report, the top line shrunk 1.3% in second quarter whereas in first quarter revenues decelerated 0.9% on a year-over-year basis.

The dreary picture enveloping the sector is displayed in the bearish Zacks Industry carried by most of its sub-groups. For example, the Transportation-Airline segment carries a Zacks Industry rank of 241 (out of 260+ industries) and the Transportation-Shipping segment carries a rank of 223.

Sector Not Bereft of Positives

Despite the negatives, the sector did see quite a few key players like Delta Air Lines (NYSE:DAL) , American Airlines Group (NASDAQ:AAL) and JetBlue Airways (NASDAQ:JBLU) beating the Zacks Consensus Estimate for earnings in the second quarter. The chief growth driver was cheap oil.

One of the primary benefactors for any transportation company is cheap oil as costs associated with fuel represent one of the main expenses for this sector. Currently, oil is hovering around $45 a barrel. While this represents a strong resurgence from the 12-year low of around $26 a barrel hit in February, the fact remains that the commodity is still trading at levels much lower than those ($100+ a barrel) witnessed in mid-2014. With oil unlikely to touch the mid-2014 highs any time soon, soft oil prices should continue to benefit transport companies going forward.

The gigantic fall in oil prices has bolstered the bottom lines of transportation stocks resulting in huge savings, thereby cushioning their financial health. This has led to most companies in the space promoting shareholder friendly activities like hiking dividends or announcing new repurchase programs.

Uncertain Scenario Calls for Value Investing

The above write up clearly suggests that a great cloud of uncertainty looms large on the sector. In this volatile scenario, it is advisable for investors interested in the sector to opt for Value stocks that are perceived to be “bargains” or are undervalued.

In value investing, investors tend to hold a stock until it meets its target price and sometimes even longer provided the company exhibits profitability persistently. However, given the vastness of the sector, pinpointing such stocks is by no means an easy task. This is where our style score system shows its efficiency. Our research shows that stocks with a Value Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best opportunities in the value investing space.

The transportation stocks, we highlight below sport a Zacks Rank #2 or better and have a Value Style Score of ‘A.’ We have also considered their P/E ratio – an important factor for recognizing value stocks. All of these five stocks have P/E (F1) less than 11.

Our Choices

Dynagas LNG Partners LP (NYSE:DLNG) , based in Greece, focuses on owning and operating LNG carriers that are employed on multi-year contracts with international energy companies. The company sports a Zacks Rank #2 and a market capitalization of $303.5 million. The stock has a P/E ratio of 8.3.

SkyWest Inc. (NASDAQ:SKYW) is an airline company in the U.S. that provides passenger and air freight services. SkyWest currently has Zacks Rank #2, market capitalization of $1.43 billion and a P/E of 10.4.

Aegean Marine Petroleum Network Inc. (NYSE:ANW) : Being a marine fuel logistics company, it physically supplies and markets refined marine fuel as well as lubricants to ships in ports and at sea. The company sports a Zacks Rank #1 and has a market capitalization of $546.5 million apart from a P/E of 8.7.

GasLog Partners LP (NYSE:GLOP) owns, operates and acquires LNG carriers with multi-year charters. The company sports a Zacks Rank #2 and has a market capitalization of $493.9 million apart from a P/E of 9.3.

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