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Investing in Transportation Stocks and ETFs

October 08, 2020 · 6 minute read

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Investing in Transportation Stocks and ETFs

What do FedEx, JetBlue, and Ryder System have in common?

How about Delta Airlines, J.B. Hunt, and Norfolk Southern? Or UPS, Kansas City Southern, and XPO Logistics?

In one word: transportation. The businesses listed above make up a diverse group, no doubt about that. But they all specialize in or contribute to transporting things or people from one place to another, making them all part of the transportation sector.

For beginning investors, deciding which stocks to buy may feel overwhelming at times. But here’s a helpful tip: The transportation sector is actually unique because it’s so diverse. This trait can make investing in transportation stocks appealing.

What Are Transportation Stocks?

The stock market is split into various sectors, or groups of industries that buy and sell similar products, services, or goods. For example, banks like Bank of America and investment management companies like Invesco fall under the financial services sector.

Social media companies like Facebook and telecommunications companies like Verizon are considered parts of the communication services sector.

With all that said, what sorts of companies make up the transportation sector?

The Transportation Sector in a Nutshell

The transportation sector refers to businesses that transport goods, products, or people from one place to another, or offer the necessary infrastructure.

For example, the United Postal Service (UPS) and FedEx (FDX) are part of the transportation sector because they transport mail and packages. So are major airlines, because airlines transport people from one city to another.

Because the transportation sector relies so heavily on the performance of other companies, this sector may provide insight into how the economy is doing as a whole.

For example, are people shopping online? That may mean they have disposable income, and package delivery companies do better when they have a lot of products to ship. Is the lumber industry taking a hit?

Then trucking companies might suffer because they make fewer lumber deliveries. This also means that transportation stocks’ performances may be related to how well other sectors are doing.

Other transportation stocks may rely on U.S. trade relations with other countries. For another example, it’s possible that the long-term trade war between the United States and China caused rail transportation company CSX Corporation to struggle in 2019.

Some say that since U.S. importers knew that tariffs would be imposed in 2019, they transported a large amount of products in 2018 in order to avoid the impending tariffs.

Types of Transportation Stocks

Yes, the transportation sector is pretty broad, which can create confusion. For instance, trucking companies are part of the sector, but auto manufacturers aren’t.

At first glance, that seems counterintuitive. It’s helpful, then, to know transportation’s five subsectors (subcategories):

•  Logistics services. This is the behind-the-scenes work of transportation, like companies that fill orders or plan supply and demand. For example, warehousing and storage companies or companies who take care of logistical services like connecting road carriers with businesses that ship product parts. Both would fall under the logistics services subsector.

•  Air and express delivery services. These are companies that move products, goods, or people by air for quick delivery. Major airlines would fall under this category. So do many delivery services, because they ship some packages by plane and works to deliver items quickly.

•  Maritime. Businesses in the maritime subsector transport by water. For example, companies who transport grain, coal, steel products, and iron ore on boats. Or other companies who ship petroleum by boat internationally.

•  Trucking. These companies transport by truck. There are many well-known trucking companies in America.

•  Freight rail. These companies move products, goods, or people via train. For example, some of the major railways ship things by train across state lines in different regions.

If a business falls under one of these five sub sectors, it’s likely part of the transportation sector.

On the other hand, companies some may think to be part of the transportation sector, such as large automakers—because they produce products like cars—are actually part of the consumer cyclical sector.

This might seem strange, but consider this: These companies focus on selling cars to consumers just as much as they focus on transporting them (If not more so!).

Similarly, cruise lines are part of the cyclical sector rather than the transportation sector, because they focus on travel—thus, the consumer.

The Pros and Cons of Investing in Transportation

Regardless of which stocks someone’s investing in, it’s helpful to understand some of the pros and cons of the ones they select. No sector is perfect.

And it’s highly unlikely that a single stock or market sector will always increase. With all investing, there is risk involved, and so it’s important to proceed with that in mind, and with your eyes open.

So, what’s helpful to know before investing in transportation stocks? What are some of the pros and cons?

The Pros of Investing in Transportation

You may have heard experienced investors spout the age-old wisdom, “Invest in what you know.” There’s something to be said for buying a stock when you understand the company, how the business works and how it makes money.

There’s a decent chance that you “know” a few transportation companies. Do you order packages? Do you fly back to your hometown every summer?

Do you have a family member who is a truck driver or train dispatcher? You may have insights into those companies as well.

While industries like real estate and health care might seem like a mystery, it may be more likely that something in the transportation sector resonates.

And if someone invests in a sector exchange-traded fund like transportation, they may be able to follow a group of companies that can all do well if the transportation sector performs well as a whole.

Taking the earlier examples into consideration, if online buying trends continue, or the U.S. establishes beneficial trade deals with foreign countries, the transportation sector may reap the benefits (keyword: may).

Plus, investing in a diverse sector ETF can further diversify a portfolio. A diverse portfolio may make for less volatility overall.

Let’s say the stock of a trucking and logistics company drops a whopping 20% in one day. If you’ve also invested in an airline and maritime company, the sudden decline of a trucking and logistics company may not hurt as much.

The Cons of Investing in Transportation

Unfortunately, transportation stocks don’t necessarily do well in a recession. Think about it—in a recession, industries that stay strong are typically ones that are essential, or provide “sinful” escapism, or ones with businesses that provide discounted products.

Not all companies in the transportation sector are essential or cheap. People might cut back on online shopping, so now there are fewer orders for delivery companies to deliver. Travelers might postpone that big vacation, which doesn’t work out so well for airlines.

Consumers aren’t the only ones who cut back. Companies might order less lumber or auto parts, for example, if they’re producing fewer products. Now those goods don’t need to be transported.

Also, let’s say you want to invest in an ETF rather than in individual or fractional shares of a stock. In this case, you might not “know” the companies you’re investing in very well. Sure, you may know all about airlines because you’re a frequent traveler.

But what do you know about cargo ships? Or warehousing? This is one con of such a diverse sector. (Of course, if this idea makes you nervous, you may just choose to buy individual stocks or parts of transportation stocks. More on the latter later.)

Do You Want to Invest in Transportation?

Reading about the cons of investing in transportation might make you hesitant to buy transportation stocks. And in the end, you might decide they aren’t for you.

But remember that every sector has its tradeoffs. There will be some ups and downs along the way, regardless of which stocks you choose. And as always, there’s risk involved. It’s helpful to ask yourself:

Which transportation stocks do you “know?” Would you rather invest in transportation ETFs, individual stocks, or fractional stocks? And if you don’t know the answers to these questions, don’t hesitate to reach out to a professional for a little guidance.

Investing in Transportation—Regardless of Wealth

Interest piqued? Here are some possible ways to invest in transportation stocks.

Some people already have a broker or financial advisor who manages their retirement accounts and investments. In this case, they can call, email, or schedule a meeting with the professional to talk about where the transportation sector is headed and receive their advice.

Those who have a broker or financial advisor may also want to discuss with them whether they would advise investing in individual transportation stocks or a transportation ETF.

ETF stands for “exchange- traded fund.” Funds can contain multiple stocks or other assets, like bonds or commodities. Many ETFs follow a certain index, like the S&P 500, Dow Jones, or Nasdaq indexes.

There are pros and cons to investing in an ETF over individual transportation stocks. If someone invests in a transportation ETF, such as the SPDR® S&P® Transportation ETF, Cushing Transportation & MLP ETF, or iShares Transportation Average ETF, they’ll be investing in a wide range of transportation stocks, helping with diversification.

What if the aspiring investor in question doesn’t you don’t have much money, though? Not enough money to open a brokerage account, or even to buy one share of a stock. That’s okay! In this case, you can just buy a fraction of a stock—otherwise known as a fractional share.

If this sounds like what you’re looking for, you may want to check out fractional share investing through SoFi Invest®.

As long as you have at least $1 in your SoFi Invest account (which is a lower minimum balance than what many brokerage accounts require), you can start buying partial shares, rather than the whole thing. And you can do so with multiple stocks!

You can buy fractional shares of transportation stocks like UPS and XPO Logistics, as well as other stocks, like Disney, Alibaba, Lululemon Athletica, and more.

Even if you do have the money to invest in individual stocks or ETFs, investing in fractional shares is a great way to diversify your portfolio without dropping a ton of money at once.

And unlike brokers, financial advisors, and even robo-advisors, there are no account management fees with SoFi Invest. SoFi invests 100% of the money you put into the account.

Are you interested in investing in fractional transportation stocks? With Stock Bits, you can start with as little as $1.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

Stock Bits
Stock Bits is a brand name of the fractional trading program offered by SoFi Securities LLC. When making a fractional trade, you are granting SoFi Securities discretion to determine the time and price of the trade. Fractional trades will be executed in our next trading window, which may be several hours or days after placing an order. The execution price may be higher or lower than it was at the time the order was placed.

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