It’s time to be realistic about this transportation industry
- Waning demand and macro headwinds mean it’s time to consider trucking stocks to sell.
- Daseke (DSKE): Revenue trends have been declining for Daseke.
- Yellow Corp (YELL): Yellow continues to issue new debt.
- US Xpress Enterprises (USX): US Xpress is encountering gross margin pressures.
- Best Inc (BEST): Best’s distressed financials confirm even Chinese shippers hurt.
- Covenant Logistics (CVLG): Investors should watch out for Covenant’s margin pressures.
- Patriot Transportation (PATI): Revenue growth pressures cloud Patriot Transportation.
- Universal Logistics (ULH): While Universal Logistics is robust, it’s a bit overvalued.
There’s a good deal of trucking stocks to sell. To be clear, the market ideas on this list do not necessarily represent flawed strategies or operations. Rather, investors must deal with certain realities that disproportionately impact certain sectors over others.
Fundamentally, the nature of trucking stocks to sell centers largely (if not mostly) on the Federal Reserve. In the initial response to the coronavirus pandemic, the Fed expanded the size of its balance sheet through bond buybacks, thus introducing liquidity (inflation) in the system. Now, it must unwind this excess, meaning that it must introduce deflationary dynamics.
This countervailing force ultimately created an air of inevitability for trucking stocks to sell. In the first half of this year, inflation dominated proceedings, resulting in purchasing power reductions. Naturally, the Dow Jones Transportation Averageslipped in response.
To be sure, the transportation index popped higher as the Fed attempted to control inflation through rate hikes. But now, the index faded noticeably (between mid-August till the time of writing). Thus, whether we have inflation or deflation, you should probably consider these trucking stocks to sell.
|USX||US Xpress Enterprises||$2.37|
The largest owner and a leading consolidator of flatbed and specialized transportation in North America, Daseke (NASDAQ:DSKE) has 16 operating companies with over 5,200 trucks and over 11,000 flatbed and specialized trailers. On a year-to-date basis, DSKE fell nearly 39%. Currently, the company commands a market capitalization of almost $400 million.
Fundamentally, the main risk factor to watch regarding Daseke is its declining revenue trend over the last five years. Other income statement-related metrics also don’t bode well. For instance, both its three-year revenue growth and three-year EBITDA growth rates fell into negative territory. As well, its book growth rate during the aforementioned period is 33% below parity, one of the worst such metrics among trucking stocks to sell.
To be fair, Daseke represents a high-quality business based on its return on equity of nearly 32%. Also, you can make a case that it’s undervalued based on price-earnings ratios and price-to-sales ratios. However, the balance sheet is somewhat problematic. For instance, its Altman Z-Score indicates the business nears the distressed zone.
Yellow Corp (YELL)
Headquartered in Overland Park, Kansas, Yellow Corp (NASDAQ:YELL) is a transportation holding company. Its subsidiaries include both national and regional carriers. Since the beginning of this year, YELL hemorrhaged nearly 65% of its equity value. That alone draws attention regarding trucking stocks to sell. Presently, Yell features a market cap of $222.5 million.
Fundamentally, Yellow raises several questions. Per Gurufocus.com, Yellow keeps issuing new debt. Over the last three years, it issued $661 million in debt. As well, the company encountered gross and operating margin pressures. If that wasn’t enough, Yellow also suffers from declines in revenue trends over the past five years. To be completely fair, investors should know that YELL enjoyed one insider buying transaction in the past three months. Unfortunately, that might not be enough to prevent YELL from being on a list of trucking stocks to sell. Bear in mind that the company’s balance sheet places the business in the distressed zone.
US Xpress Enterprises (USX)
Headquartered in Chattanooga, Tennessee, US Xpress Enterprises (NYSE:USX) specializes in both one-way truckload solutions and dedicated services. Since the start of this year, USX fell a steep 60%, again representing one of the worst performers among trucking stocks to sell. Currently, the company has a market cap of $122 million.
Fundamentally, US Xpress Enterprises suffers from significant margin pressures. On the gross margin side, Gurufocus.com notes that this metric has been in long-term decline. The average rate of decline is 2.8%. For operating margin, this metric slipped for a five-year period. Here, the average rate of decline stands at 10.2%. Moreover, the investment resource points out that revenue trends have also declined in the last five years.
Before you fully commit to USX as one of the trucking stocks to sell, you should note that positives exist. Primarily, the company rates well for valuation metrics such as price-to-book and P/S ratios. But would that be enough to save it? The problem is that USX also represents a distressed business based on its lowly Altman Z-Score.
Best Inc. (BEST)
Billed as a leading integrated smart supply chain solutions provider, Best Inc. (NYSE:BEST) provides logistics services in China and Southeast Asia. However, even abroad, it appears that trucking stocks to sell remains a necessary topic. After all, the loss that BEST incurred is nothing short of hideous, hemorrhaging nearly 88% of equity value. At the moment, the company has a market cap of about $49 million.
You don’t really need to understand why BEST represents one of the “best” trucking stocks to sell. But if we must beat a dead horse, the company features profitability pressures. Specifically, its operating margin has been on a five-year declining trend. The average rate of decline is 4.3%.
Another factor to watch out for centers on declining revenue trends. Bearish pressures impacted the top line for the past five years. If that wasn’t enough of a concern, its financial stability rates very poorly. Sadly, Best incurs a high probability of bankruptcy, given its Altman Z-Score of 3 points below parity.
Covenant Logistics (CVLG)
Also based in Chattanooga, Tennessee, Covenant Logistics (NASDAQ:CVLG) represents an organization focused on truckload shipping. At first glance, it doesn’t seem a natural candidate for trucking stocks to sell. Most notably, CVLG enjoys a blistering performance this year, gaining over 42% of market value. For comparison, the S&P 500 index is down 19.5% during the same period. Its market cap currently stands at $523 million.
Fundamentally, some worrying signs do exist. Primarily, Covenant incurs profitability pressures. For instance, its gross margin is mired in long-term decline, per Gurufocus.com. The rate of decline is 1.3%. Further, its operating margin slipped for the last five years. At the moment, the loss rate sits at a worrying 17.5%.
To be fair, Covenant enjoys decent strengths in the balance sheet. As well, it happens to print solid longer-term growth stats. As well, its return on equity of almost 34% reflects a high-quality business. However, it may come down to what investors want to pay for these attributes. Tellingly, Gurufocus.com rates Covenant as significantly overvalued.
Patriot Transportation (PATI)
Based in Jacksonville, Florida, Patriot Transportation (NASDAQ:PATI) is an American trucking and real estate holding company. Through its affiliates, Patriot specializes in moving freight consisting mainly of petroleum products and other liquids and also dry bulk commodities. Like Covenant Logistics, Patriot also represents one of the YTD winners in the trucking space, with shares up nearly 4%.
Nevertheless, Patriot might qualify as one of the trucking stocks to sell. While it’s not nearly as questionable as the top names on this write-up, PATI is a small company. At the time of writing, it commanded a diminutive market cap of just under $30 million.
Fundamentally, Patriot suffers from gross margin pressures, which have been in long-term decline. The average loss rate is 1.5%. Also, the company’s revenue trend slipped over the last five years. As broader circumstances become constrained, the growth decline could be a problem.
Still, Patriot also enjoys a solidly stable balance sheet so it’s not a shorting candidate. Rather, it’s one of those watch-out-for-future-volatility ideas.
Universal Logistics (ULH)
Based in Michigan, Universal Logistics (NASDAQ:ULH) is a full-service logistics solutions provider. At the moment, ULH carries almost no front-facing sign of being one of the trucking stocks to sell. Since the beginning of this year, ULH jumped over 89%. Currently, the company carries a market cap of $937 million. Despite its enormous equity value expansion, investors may want to be cautious. After all, with recessionary dynamics on the horizon, it might be time to secure robust profits while they still exist.
Fundamentally, Gurufocus.com had this to say about its asset growth expanding faster than revenue growth. “If a company builds assets at 16.6% a year, faster than its revenue growth rate of 10% over the past 5 years, it means that the company may be getting less efficient.” Otherwise, the only other glaring factor to watch out for is the issuance of new debt, though overall levels remain acceptable.
Perhaps the greatest distraction against ULH is that investors pay a premium for it. Its price-to-tangible-book ratio of 8 times ranks worse than over 93% of the industry.
Photo by Robson Hatsukami Morgan on Unsplash