Airlines and cruise line stocks have had an extremely volatile couple of years since the pandemic completely shut down global travel back in 2020. Travel industries still haven't recovered to their pre-pandemic levels. In addition, ongoing supply chain issues have created extreme volatility in transportation prices among railroad, trucking and freight stocks.
As the economic recovery continues, some transportation and logistics companies are perfectly-positioned to benefit, while others may continue to struggle to gain back lost business. Now is an excellent time for investors to bet on the return of transportation, but they need to be selective.
Here are six of the best transportation stocks to buy, according to Bank of America.
United Parcel Service, Inc. (NYSE:UPS)
United Parcel Service is a global package delivery company that also provides air and ocean forwarding, customs brokerage, and truck freight services.
Analyst Ken Hoexter says UPS provides investors access to the massive global e-commerce market and has a growing 2.7% dividend yield. The company is focused on pricing, e-commerce and global sourcing, and Hoexter says its network transformation should help it improve its cost structure and mitigate margin compression from e-commerce growth over time. Hoexter projects 5.5% EPS growth in 2022.
Bank of America has a Buy rating and $243 price target for UPS stock, according to Benzinga Pro.
Union Pacific Corporation (NYSE:UNP)
Union Pacific operates the second largest U.S. railroad network, with approximately 32,000 miles of track in the western U.S.
In the past decade, Union Pacific has improved its operating ratio from the mid-80s to the upper 50s, Hoexter says. As a result, the company has generated sustained earnings growth in the upper teens percentage range. The company has adopted precision scheduled railroading, which has significantly improved its efficiency. Union Pacific hopes to reach a 55.5% operating ratio in 2022, down from 58.5% in 2020.
Bank of America has a Buy rating and $277 price target for UNP stock.
CSX Corporation (NASDAQ:CSX)
CSX operates a U.S. network of about 20,000 railroad route miles in the eastern U.S., transporting raw materials, intermediate and finished goods, and intermodal containers.
Hoexter says CSX continues to refine its precision scheduled railroading model implemented by former CEO Hunter Harrison and advanced by current CEO Jim Foote. As it continues to cut costs, Hoexter says CSX should experience earnings multiple expansion and transition to volume growth. Hoexter says the company's pricing has outpaced inflation, and CSX is well-positioned for sustainable earnings growth in the double-digit percentage range.
Bank of America has a Buy rating and $42 price target for CSX stock.
Norfolk Southern Corp. (NYSE:NSC)
Norfolk Southern is a railroad company that operates 19,500 route miles in the eastern U.S. and Canada.
Hoexter says Norfolk updated its Thoroughbred Operating Plan 2021 and is targeting a sub-60% operating ratio. He adds that the company's operational improvements, Yield Up strategy and improving free cash flow should drive earnings multiple expansion for the stock. In 2022, the Norfolk Southern is targeting high-single-digit revenue growth and between 0.5% and 1% operating margin gains, and it plans to boost hiring, productivity and service.
Bank of America has a Buy rating and $321 price target for NSC stock.
FedEx Corporation (NYSE:FDX)
FedEx provides air express and ground package services, as well as truck freight and logistics services, to global residences and businesses.
Fred Smith, chairman, founder, and CEO of FedEx Corp. is stepping down as CEO, effective May 31, 2022. Hoexter says Smith's departure is a historic moment, and incoming CEO Raj Subramaniam will help shift the company's focus from growth to integrating its Express Ground and Freight segments. FedEx will be hosting its first analyst day in a decade in late June, which could be a bullish catalyst for the stock.
Bank of America has a Buy rating and $280 price target for FDX stock.
Southwest Airlines Co (NYSE:LUV)
Southwest Airlines is one of the "big four" U.S. airline stocks. Southwest shares have held up relatively well so far in 2022 as vacation travel recovers from the pandemic.
Analyst Andrew Didora says airline demand hit a trough in early January during the Omicron variant outbreak, but has been steadily improving ever since. He says corporate travel bookings will continue to steadily improve and potentially accelerate in the second half of 2022. Unit costs may continue to be elevated in the first half of the year, and Didora says high-quality airlines like Southwest are still the best way to play a recovery.
Bank of America has a Buy rating and $55 price target for LUV stock.
