The supply chain is the system that moves goods, services, and raw materials worldwide. Supply chain stocks include transportation companies (such as railroads, trucking companies, and shippers), delivery companies, and freight companies. They also include logistics companies, supply chain software businesses, and services companies.
Global supply chains have come under severe pressure in recent years due to:
- Trade tariffs
- Geopolitical tensions, such as conflicts in Ukraine and the Middle East, which are spilling over into trade disruptions
These pressures have led to negative revisions to earnings estimates, higher prices, and fears of a recession. For decades, increasingly interconnected and interlinked global supply chains have operated under Just-in-Time principles. Under this strategy, materials and products are moved just before they are used or sold, leaving the supply chain susceptible to sudden shocks.
Top supply chain stocks to consider
NYSE: UPS
Key Data Points
A combination of slowing economic growth and a natural correction in consumer behavior (a return to spending on travel and services rather than on products) hurt volume growth, putting pressure on margins. Additionally, the Trump administration's tariffs are creating considerable uncertainty among UPS's customer base.
UPS is addressing these issues while focusing on expanding in targeted markets such as healthcare and small and medium-sized businesses (SMBs). At the same time, UPS is deliberately reducing its low- or negative-margin Amazon (AMZN +0.77%) deliveries to focus on higher-margin deliveries within its network.
It may take some time, but UPS should recover as volumes eventually improve and the industry adjusts its capacity to meet demand.
2. CSX
There's been a quiet revolution in the railroad sector over the past decade. All the leading players, including CSX (CSX +1.68%), have adopted precision scheduled railroading (PSR) management techniques. The strategy aims to run the same volumes while using fewer assets. PSR practitioners enhance performance by closely monitoring key metrics, including car velocity, downtime, and train length.
NASDAQ: CSX
Key Data Points
Old Dominion sports some of the highest margins in the transportation industry. The company has made impressive gains over the past decade. Margin growth was especially strong during the 2020-2022 period when Old Dominion was able to be more selective about deliveries, given surging demand.
Although freight demand will naturally oscillate with the economy, Old Dominion is a high-quality operator in the LTL industry. Long-term LTL demand is likely to grow due to the growth in e-commerce deliveries, which require relatively small loads to be delivered as part of companies' online sales campaigns.
4. Trimble
Investors may wonder what a positioning technology company is doing on this list. The answer is simple: Trimble's (TRMB +1.57%) technology is on 99% of the top 200 trucking fleets in the U.S. The transportation and logistics segment accounts for approximately a quarter of the company's overall sales.
NASDAQ: TRMB
Key Data Points
Using Trimble's hardware and software, trucking companies can monitor and adjust their fleets in real time. By doing so, they can increase fleet utilization and reduce fuel costs.
Additionally, trucking is a vital component of the supply chain. Trucking companies transport raw materials and finished goods to distribution warehouses and, ultimately, to stores or directly to customers. As a result, Trimble's technology can improve return on investment across the supply chain.
NASDAQ: MANH
Key Data Points
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FAQ
Supply chain stocks FAQ
About the Author
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Manhattan Associates, Old Dominion Freight Line, and United Parcel Service. The Motley Fool recommends FedEx and Trimble. The Motley Fool has a disclosure policy.
