The supply chain is the system of how goods, services, and raw materials move 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.
These companies are a hot topic right now because global supply chains have come under severe pressure in recent years. Factors contributing to supply chain issues include:
- Trade tariffs
- COVID-19 lockdowns
- Geopolitical tensions, like the conflict in Ukraine
- Shortages of components, such as semiconductors, and raw materials, including nickel
These pressures have led to negative revisions to earnings estimates, higher prices, and fears of a recession.
For decades, ever-closer and interlinked global supply chains operated under “just in time” principles. Under this strategy, materials and products move “just” before they are used or sold, leaving the supply chain susceptible to sudden shocks. Unfortunately, that’s precisely what has happened.
5 supply chain stocks to watch in 2024
As a result of supply chain disruptions, investors are naturally looking to buy stock in companies poised to help corporations deal with related challenges. The stocks listed below are ways to invest in the supply chain theme.
| Company | Market Cap | Description |
|---|---|---|
| UPS (NYSE:UPS) | $152.6 billion | Domestic and international package delivery, supply chain services |
| CSX (NASDAQ:CSX) | $67.2 billion | East Coast railroad |
| Old Dominion Freight Line (NASDAQ:ODFL) | $32.8 billion | Less-than-truckload shipping |
| Trimble (NASDAQ:TRMB) | $12.6 billion | Positioning technology hardware and software |
| Manhattan Associates (NASDAQ:MANH) | $7.4 billion | Supply chain solutions software |
1. UPS
Package delivery giant UPS is in the throes of a transformation that CEO Carol Tomé describes as “better, not bigger.” The phrase represents a determination to utilize the company’s existing assets better and maximize profitability rather than purely chasing volume growth.
Both UPS and FedEx (FDX 0.11%) have faced challenges ramping up capital spending to build out networks to handle surging e-commerce volumes. Costly business-to-consumer (B2C) deliveries have also pressured margin growth.
However, Tome’s new framework appears to be working, and UPS is well on its way to achieving its medium-term aims. In addition, management’s transformational strategy focusing on the small and medium-sized business (SMB) and healthcare markets got a boost during the pandemic as SMBs flocked to build out e-commerce capabilities and healthcare delivery came to the fore.
With margin expansion and cash flow generation plans firmly in place, and plenty of underlying e-commerce volume growth to come, UPS is well-positioned to increase earnings as it solves its customers’ delivery needs.
2. CSX
There’s been a quiet revolution in the railroad sector over the past decade. All the leading players, including CSX, have adopted precision scheduled railroading (PSR) management techniques. The strategy aims to run the same volumes while using fewer assets. PSR practitioners closely follow key metrics such as car velocity, terminal dwell, and train length to improve performance.
In addition, they tend to run trains from point to point on fixed schedules rather than the old hub-and-spoke model. The leading railroads have reduced their operating ratio (expenses divided by revenue). Of course, a lower operating ratio means a higher profit margin.
CSX and the other railroads are key supply chain players. But they also have a role to play in alleviating some problems created by supply chain dislocations. For example, if Europe is phasing out Russian energy, then the U.S. has an opportunity to export energy through East Coast terminals. Similarly, U.S. railroads will benefit from a shift toward onshoring -- a move encouraged by the difficulties securing materials and components suffered by many companies since the pandemic hit.
3. Old Dominion Freight Line
One of the most respected names in trucking, Old Dominion is a specialist in the less-than-truckload (LTL) shipping industry. Whereas full-truckload (TL) shippers tend to deliver a truckload for one customer, LTL trucks can carry freight for multiple customers. That’s a key advantage in a supply chain crisis since myriad customers are willing to pay more money to ensure critical components are delivered.
Old Dominion sports some of the highest margins in the transportation industry. In fact, the company has been on an impressive uptrend over the past decade. Margin growth was especially strong during the pandemic as Old Dominion was able to be more selective about deliveries given surging demand. In other words, the company focused on maximizing profitability in the face of strong demand -- a similar story to that of UPS.
4. Trimble
Investors may wonder what a positioning technology company is doing on this list. The answer is simple: Trimble’s technology is on 99% of the top 200 trucking fleets in the U.S. Moreover, the transportation segment contributes around a quarter of the company’s overall sales.
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.
In addition, trucking operates throughout the supply chain. Trucking companies transport raw materials and finished goods to distribution warehouses and, ultimately, to stores or even directly to the customer. As a result, Trimble’s technology can improve return on investment across the supply chain. It’s a key benefit for companies looking to cut supply chain costs and improve productivity.
Ultimately, Trimble’s management believes the transportation sector has a total addressable market of $14 billion. Supply chain issues will only enhance the company’s growth prospects within it.
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5. Manhattan Associates
Manhattan Associates produces software used to manage the supply chain and inventory for the retail, wholesale, distribution, and manufacturing end markets. While the supply chain crisis has raised awareness of the need to improve supply chain management, Manhattan has another powerful growth driver. Specifically, the COVID-19 pandemic has also accelerated retailers' omnichannel capabilities. In plain English, that means retailers are increasingly selling through various channels, whether it’s in-store, online, by phone, etc. -- a move encouraged by the lockdowns imposed in response to the pandemic.
As a result, supply chain management is becoming more complex for retailers and logistics operations in distribution centers and warehouses. All of this plays to Manhattan’s strength. The company’s long-term growth prospects look excellent, with Wall Street analysts penciling in double-digit revenue growth for the foreseeable future.
