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Why Shipping and Transportation Stocks Were Up Big This Week

By Travis Hoium – Updated Oct 22, 2021 at 4:56PM

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Profits are soaring in shipping and transportation.

What happened 

Shares of shipping and transportation stocks were on fire this week as positive earnings reports started coming out and there continued to be high demand for both shipping and trucking services. If the current economic trends continue, this could be a hot sector of the market well into 2022. 

Full Truck Alliance (YMM -5.45%) led the charge by jumping 16.3% this week; Knight-Swift Transportation (KNX -1.27%) was up 13.8%; ZIM Integrated Shipping (ZIM 6.36%) rose 12.9%; and Navios Maritime Partners (NMM 0.75%) gained 7.8%, according to data from S&P Global Market Intelligence.

YMM Chart

YMM data by YCharts

So what

The biggest news came from Knight-Swift Transportation, which reported third-quarter results this week. Revenue was up 35.7% from a year ago to $1.64 billion and net income jumped 68.9% to $206.2 million, or $1.23 per share. Each of the company's segments saw an increase in both revenue and earnings, which shows just how strong the transportation business is right now. 

On an adjusted basis, Knight-Swift Transportation's management said that earnings were $1.30 per share, easily topping the $1.07 estimate from Wall Street. But the best news of the week was management increasing its full-year adjusted earnings guidance from $3.90 to $4.05 per share up to $4.50 to $4.55 per share, which is a huge increase this late in the year. 

Large ship on open water.

Image source: Getty Images.

Shipping company ZIM Integrated also announced the acquisition of seven secondhand vessels for $320 million. The company's management said it was using cash to strengthen the company's operations, which are riding the tailwinds of increased demand for ships

Now what

It seems like every company in the transportation or shipping business is seeing extremely strong demand today, and that's why a wide range of stocks were up this week. Wither it's a limited number of available ships or staffing shortages, there's more demand than there is supply for moving goods around the world.

What's interesting for long-term investors is that it doesn't seem like this dynamic will change anytime soon. Ports are still congested, and the economy is roaring back from the pandemic with the backing of stimulus funds, particularly in the U.S. 

It'll potentially take years for companies to increase supply to meet demand, particularly in the shipping market, which is why I think we'll see profits rise for the foreseeable future. That doesn't mean that we won't eventually swing to an oversupplied environment, but not before companies are able to generate tremendous profits. 

This week was another reminder of what a good time it is to be in the transportation business, and I expect more strong earnings reports from companies in the industry over the next month. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends S&P Global. The Motley Fool has a disclosure policy.

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