Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking three high-profile Wall Street picks and putting them under the microscope...

If you have any interest in investing in the trucking industry, then this news will be music to your ears. Investment banker Stifel Nicolaus -- which ranks in the top 10% of investors we track here at Motley Fool CAPS -- just announced upgrades for not one, not two, but three separate trucking stocks:

  • USA Truck: A buy with a $15 price target.
  • Heartland Express (NASDAQ:HTLD): Also a buy, and with a price target twice as high: $28.
  • J.B. Hunt Transport Services (NASDAQ:JBHT): Maybe the biggest buy of all, targeting a $125 price.

Now here are three reasons why.

Semi truck driving into sunrise

Stifel Nicolaus sees a bright new day dawning for trucking stocks. Image source: Getty Images.

1. Congestion in the trucking lanes

What has Stifel Nicolaus feeling so optimistic about trucking? In a word: Capacity. As in, there isn't much left in the trucking industry right now. As explained in serial notes covered on StreetInsider.com (requires subscription) today, "tight supply and demand" in the truckload market is creating "capacity constraints." This is, in turn, giving truckers the ability to command "strong pricing" on their services, with rates expected to rise between 5% and 10% over the next three quarters.

Trucker profits will follow. Stifel projects that USA Truck alone will see this year's losses turned into a $0.30-per-share profit next year. J.B. Hunt, already expected to be profitable this year ($3.75 per share), could earn as much as $4.55 next year -- a 21% jump in profit. (And that tells you how leveraged this industry is, if a single-digit increase in prices can produce such a strong double-digit increase in profits.)

2. The "Mother of all truckload capacity shortages"

And this increase in prices could be truly huge. In an article posted just last month, trucking industry news and analysis site FreightWaves.com argued the trucking industry is facing the "[m]other of all truckload capacity shortages." But why?

FreightWaves describes two major trends contributing to tight truckload capacity in the U.S. On the one hand, there seem to be simply not enough trucks to go around. This is evidenced in trucking rates on the spot market being "on fire" lately, "indicating that demand is outstripping capacity in the truckload market." FreightWaves is seeing rate rises of 3% as a given, and believes rates could easily rise 8% to 10% and sticking there for "the next 24 months."

On top of this, trucking companies are having trouble finding drivers for their rigs, which is forcing them to raise prices as well. Competition from other industries that also employ drivers -- construction and oil, to name a couple -- ranges from "coming back" to "super-high." Meanwhile, a lot of drivers are nearing retirement age, which is further stressing the labor supply. All of this adds up to higher costs for trucking companies -- and more ability to pass those costs on to customers in the form of higher prices.

3. A perfect storm

And all of this was before hurricane season hit -- which this is the real catalyst that could drive trucking stocks higher. Waxing poetic, FreightWaves notes: "The resupplying and rebuilding of South Texas will make any Keynesian economist blush with the level of spending that will take place."

When Texas flooded last month, it created a perfect storm for trucking, in which not only will thousands and thousands of homes and other buildings need to be rebuilt, but many stores and warehouses got flooded as well, and "their stock is completely ruined." Those warehouses will need to be restocked, and quickly, and this will require additional trucks on top of the rebuilding efforts. Across the state, FreightWaves sees "thousands of stores that are currently off line and will need repair and replenishment" -- through trucking. 

What it means for investors

In short, trucking industry analysts are forecasting a tight market for trucking supply, combined with increased demand for trucking services. "Massive orders," says FreightWaves, "the kind that it takes to rebuild an entire city," and the kind that could put current analyst estimates of 12% long-term earnings growth at Heartland and 15% for J.B. Hunt to shame.

Currently, I have to admit, I don't find the valuations of any of these stocks particularly compelling. Up 23% over the past year, Heartland stock now sells for nearly 38 times earnings. J.B. Hunt stock, up 35% in the same time period, costs an only slightly more palatable 29.9 times earnings. And of course, USA Truck remains unprofitable to this day, so has no P/E ratio.

But if FreightWaves is right (and ace stockpicker Stifel Nicolaus seems to think it is), and these trucking stocks' earnings are about to explode much higher than other analysts are predicting, then those P/E ratios could come down -- fast.

And trucking investors' profits could go up even faster.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.