Please ensure Javascript is enabled for purposes of website accessibility

3 Sectors Poised for a Big Rebound in 2013: Part 1

By Sean Williams - Oct 16, 2012 at 9:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Highlighting three underperforming sectors that look poised to rebound in a big way next year.

The market indexes have performed incredibly well this year despite a steady stream of "the world is ending" news from Europe and slowing growth in China. As of this past weekend, the broad market S&P 500 had advanced nearly 14%; but it hasn't been fun and games for everyone. There are more than a handful of sectors vastly underperforming the overall market this year.

Mirrored after the two bold calls I made to begin the year, I'm going to jump the gun and make three additional calls over three days in three downtrodden sectors that I expect to outperform the S&P 500 greatly in 2013. These probably aren't the most popular sectors, but big banks have had an incredibly strong year and they weren't exactly a prime selection to rebound when the year began. That selection of mine, however, has turned out quite prescient.

Today, as part one of this three-part series, I would like to highlight a sector that went flat in 2012, but looks poised to reap solid benefits over the long haul: the trucking sector.

Why the sector went flat in 2012
If you're looking for a single reason why trucking companies failed to deliver this year you won't find one; because there was a list of diverse excuses a mile long that encompassed the shortcomings in the sector. Wildly vacillating fuel prices, rising labor and health care costs, competitive pricing pressures, softening shipping and consumer goods demand, and in some cases one-time writedowns, littered trucking earnings reports. Misses have become the norm, with Werner Enterprises, J.B. Hunt Transport Services (JBHT 1.53%) and Heartland Express (HTLD 0.06%) all coming up short of Wall Street's estimates in their most recent quarter.

FedEx (FDX -0.12%), often seen as the staple for global small- and medium-sized businesses, also issued a rare cautionary earnings outlook in recent weeks which has investors skittish about the entire logistics sector.

What's going to change in 2013
To begin with, operational efficiencies are improving across the sector. Marten Transport (MRTN 1.66%) which transports temperature-specific cargo across North America, noted in its second-quarter results that its operating ratio improved 830 basis points due to cost-cutting and regional diversification. For Heartland Express, its operating efficiencies should be exhibited in fewer maintenance costs as its tractor and trailer fleet are an average of just 2.4 and 3.3 years old, respectively.  

Secondly, pricing should improve for both general trucking rates and fuel surcharges. This has been an exceptionally volatile year with regard to fuel prices, and I just don't foresee next year offering nearly as wide a swing in prices. With better sector visibility and generally newer fleets, truckers should be able to pass along rising costs more efficiently to their customers. Arkansas Best (ARCB 1.41%) actually did this in June, when it boosted its general rates by 6.9%.

Finally, most trucking companies are looking to hire. That might seem counterintuitive with shipping demand relatively weak at the moment, but Heartland Express and J.B. Hunt both have alluded to a decrease in net income directly related to a lack of qualified drivers, or because of the search for qualified personnel.This sector is looking to hire and expand; 2013 should be a great year for that to happen.

My top pick: Arkansas Best
I've singled out Arkansas Best on a few occasions now because of its incredibly low valuation relative to its peers (just nine times forward earnings) and its ability to pass along price increases to its customers while its larger peers have struggled to do the same. Furthermore, the addition of Panther Expedited in June for $181 million should improve its logistics operations drastically and aid in its efforts to keep costs down. Finally, of Arkansas Best's team of 11 executives, all but two have been with the company for less than 10 years. Cohesive management teams are what create great companies, and I feel Arkansas Best could be in line for a big rebound in 2013.

The company I'd avoid: YRC Worldwide (YELL -2.16%)
YRC Worldwide has done everything under the sun to avoid bankruptcy, including a massive secondary offering to raise much needed cash in 2011. With debtors more or less in control of the company, and considering the fact that YRC has not turned an annual profit since 2006, it's a company easily left behind in any trucking sector rally.

Keep on truckin'
The trucking sector is just my first choice for a big rebound next year. Come back tomorrow and I'll highlight the next sector I'll be looking at to roar back in a big way.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Heartland Express. Motley Fool newsletter services have recommended buying shares of FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

FedEx Corporation Stock Quote
FedEx Corporation
FDX
$232.18 (-0.12%) $0.27
Heartland Express, Inc. Stock Quote
Heartland Express, Inc.
HTLD
$16.13 (0.06%) $0.01
Yellow Corporation Stock Quote
Yellow Corporation
YELL
$7.74 (-2.16%) $0.17
ArcBest Corporation Stock Quote
ArcBest Corporation
ARCB
$90.73 (1.41%) $1.26
Marten Transport, Ltd. Stock Quote
Marten Transport, Ltd.
MRTN
$22.70 (1.66%) $0.37
J.B. Hunt Transport Services, Inc. Stock Quote
J.B. Hunt Transport Services, Inc.
JBHT
$193.84 (1.53%) $2.92

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
390%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.