It's time to load up on freight and logistics stocks as they quietly rev up a future growth engine: e-commerce. As part of the transportation sector, freight and logistics companies facilitate trade and commerce, both offline and online, by moving goods across boundaries by linking their expansive supply networks with their fleet -- be it air, maritime, freight rail, or truck -- and pressing them into services. The economy would come to a standstill if goods weren't moved, which is why it's only prudent that you own some stocks in an industry as vital as freight and logistics.

Now is a great time to invest, what with e-commerce giants like (AMZN 0.23%) growing at a torrid pace, even encouraging leading freight and logistics players FedEx (FDX -0.29%), United Parcel Service (UPS -0.73%), and XPO Logistics (XPO -0.16%) to raise freight tariff and expand their fleet to meet surging demand.

Critics fear that Amazon's venture into the logistics business could disrupt the industry, but none of the larger freight and logistics players currently depend heavily on any e-commerce company for sales. Air Transport Services Group is a notable exception as it got nearly 42% of its revenue from Amazon during the nine months ended Sept. 30, 2017, thanks to its aircraft lease agreement with the e-commerce behemoth.

A globe surrounded by cardboard parcels.

With e-commerce booming, now is a great time to invest in freight and logistics stocks. Image source: Getty Images.

In fact, most freight carriers consider e-commerce an opportunity and are planning their capital expenditures accordingly. At the same time, companies like UPS, XPO, and C.H. Robinson Worldwide are also betting on future technologies like blockchain that have the potential to change the dynamics of the freight and logistics industry.

The potential is huge, and I'm sure you don't want to miss the train. You could go for stocks or even freight and logistics-focused exchange-traded funds (ETF) such as the iShares Transportation Average ETF and the SPDR S&P Transportation ETF (XTN 0.11%). Having analyzed some of these investment options in depth, I believe two stocks and one ETF stand out in the freight and logistics space today for reasons revealed below.

You can't miss the potential in FedEx

A cyberattack that disrupted operations at its TNT Express subsidiary may have hurt FedEx's profits in recent quarters, but the courier delivery giant is striving to restore its systems and win back customers' trust, as management revealed during its latest earnings call.

The attack doesn't dilute the long-term investing thesis for FedEx, which is targeting an operating margin of 10% and annual earnings-per-share growth of 10%-15% among its key long-term financial goals. The freight and logistics giant is primarily betting on e-commerce and TNT, which it expects to fully integrate into FedEx Express by 2020. In fiscal 2017, 57%, or $34.8 billion, that FedEx generated in revenue came from FedEx Express.

An artist rendering of a FedEx Cessna SkyCourier 408 aircraft.

New feeder planes from Textron are part of FedEx's fleet modernization program. Image source: FedEx.

To give you an idea of FedEx's growth plans, it is modernizing its fleet and just announced a deal to purchase up to 100 Cessna SkyCourier 408 feeder aircraft from Textron Inc. to serve smaller markets inaccessible to FedEx Express air. FedEx is pursuing opportunities in FedEx Ground -- which contributed 30% to its total revenue in FY2017 -- with equal vigor. For example, FedEx OnSite has now expanded its reach to more than 7,500 stores of Walgreens, Krogers, and Albertsons where customers can pick up and drop off prelabeled shipments. FedEx claims that 29.1% of its lanes are faster than UPS lanes.

The fact that FedEx is planning to shell out 8.5% of revenue in capital expenditure in fiscal 2017 compared to UPS' targeted capex of 6%-7% of revenue through 2019 bears further testimony to its growth aggression. You never know what FedEx is up to next, going by how keen it sounded on electric vehicles in a statement given to the Memphis Business Journal after Tesla unveiled its much-hyped fully electric Semi truck. For all you know, though, owning this freight and logistics stock could reward you handsomely in the long run.

Want to profit from Amazon? Try this freight and logistics stock

If there's one freight and logistics company poised to benefit hugely from the e-commerce boom, it's XPO Logistics. Before I tell you why, consider that XPO's market capitalization has soared from some $100 million to more than $9 billion in just five years.

XPO's torrid growth can be traced to management's two-pronged approach to growth via acquisitions and investments in technology. While big-ticket acquisitions of Norbert Dentressangle SA and Con-way vaulted XPO's global reach, management's early bet on last-mile delivery has turned out to be its smartest move at a time when e-commerce and retail companies alike are battling it out on last-mile and manufacturers of heavy goods like home appliances and furniture are wooing customers online.

Two men delivering a heavy home appliance.

XPO Logistics is aggressively expanding its last-mile footprint. Image source: XPO Logistics.

Today, XPO is driving the North American last-mile logistics market even as heavyweights FedEx and UPS appear to have missed the train. In fact, retail and e-commerce already make up nearly 26% of XPO's sales thanks to last-mile. By the end of 2018, XPO aims to cover 90% of the U.S. population under its last-mile delivery service by expanding its hub count to 85 from 53 in September.

XPO is growing at breakneck speed, targeting cumulative free cash flows of $900 billion for 2017-2018 -- its FCF for the trailing 12 months was only around $200 million. With e-commerce as a huge tailwind, XPO is one of the best freight and logistics stocks to own today.

This ETF is beating leading freight and logistics stocks at their game

The iShares Transportation Average ETF, which tracks the Dow Jones Transportation Average Index, is one of the best ways to bet on freight and logistics stocks thanks to its heavy exposure to the industry. Here's a quick look at the ETF's exposure breakdown as of Dec. 4, 2017.

Industry % of ETF's Portfolio Market Value
(as of Dec. 4, 2017)  
Air Freight & Logistics 31.22%
Railroads 24.92%
Airlines 19.28%
Trucking 18.36%
Marine 5.9%

Data source: Table by author.

As of Dec. 4, FedEx was the largest holding in the ETF's portfolio, with a 14.26% share. The next five largest stocks with at least 5% share in the portfolio were railroads Norfolk Southern and Union Pacific, and freight and logistics players UPS, J.B. Hunt Transport, and C.H. Robinson.

The biggest advantage of investing in an ETF is diversification as you can bet on a basket of stocks in one go. That explains why the iShares Transportation Average ETF has generated solid returns in the past decade, almost quadrupling on a total return basis (share-price appreciation plus dividend) and handily outperforming leading freight and logistics stocks like FedEx and UPS.

Remember, an ETF won't grow like gangbusters like a stock sometimes can, but it offers a much better risk-to-reward profile, which can outweigh the potential that a stock may have to offer in the long run as is evidenced by the iShares Transportation Average ETF's returns so far.