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Why Transports Are Up Today

By Lou Whiteman - Mar 25, 2020 at 4:54PM

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The stimulus plan coming out of Washington raises hopes that the economy won't drive off the road.

What happened

Shares of XPO Logistics (XPO -1.34%) were up more than 19% as of 3:24 p.m. EDT, and shares of Old Dominion Freight Line (ODFL 2.00%) and FedEx (FDX -0.82%) were each up more than 5%, after the White House and Congress overnight announced a deal on a $2 trillion stimulus package.

Trucking and transport stocks have been under pressure for weeks on fears that the COVID-19 coronavirus pandemic would push the country into a recession. The risk is still there, but stocks are rallying after Washington signaled it would do what it can to minimize the damage.

So what

The novel coronavirus pandemic has caused a global slowdown in industrial production and trade, which in turn seems likely to impact shipping volumes for months to come. The question is how deep the slowdown will be, and how long it will last.

We won't know for sure until the pandemic is contained and business begins to normalize, but a massive show of support for the economy coming out of Washington provides reason for hope that a possible recession won't turn into a new depression.

A truck driver smiling from behind the wheel

Image source: Getty Images.

Old Dominion has been an outlier during the current downturn, with its shares now up more than 40% over the past month. In early March the company said that despite the macroeconomic issues, yields continue to improve, making up for decreases in total volumes shipped.

CEO Greg C. Gantt commented at the time that "we are off to a good start in 2020, and our revenue trends for the first two months of the year are in alignment with our initial expectations."

XPO, meanwhile, is seen by markets as having among the most to lose from a recession because of its relatively high debt load. The company had been seeking to sell one or more business units prior to the downturn, but last week called off that effort due to market conditions.

FedEx shares were already beaten down heading into 2020 after a miserable 2019, and investor hopes that the company might rebound in the new year have been diminished by recent events.

Now what

The stimulus package is a step in the right direction, but transportation is a cyclical industry; if a recession does come, it will be hard for these companies to escape further pain. All three have the resources to survive a recession, and the potential to break out once the economy recovers, but they could be in for a tough few quarters in the meantime.

Of the three, I'd avoid buying into Old Dominion right now, due simply to valuation. The stock held up when other transports fell, and is more expensive than the others on a price-to-earnings basis. But investors can feel secure riding with any of these companies through a potential downturn.

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Stocks Mentioned

FedEx Corporation Stock Quote
FedEx Corporation
$227.72 (-0.82%) $-1.89
XPO Logistics, Inc. Stock Quote
XPO Logistics, Inc.
$47.20 (-1.34%) $0.64
Old Dominion Freight Line, Inc. Stock Quote
Old Dominion Freight Line, Inc.
$264.19 (2.00%) $5.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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