Shares of trucking companies dropped Friday, after Stifel Nicolaus turned bearish on of number of them amid concerns that the “Trump bump” had gone too far.
The selloff helped drive the transport sector to significantly underperform the broader stock market, as the Dow Jones Transportation Average
slumped 1%, while the Dow Jones Industrial Average
eased about 9 points, or less than 0.1%. See Market Snapshot.
The transport sector had outperformed since the election, as investors moved quickly to price in a corporate tax cut, improved energy self sufficiency and a big boost in infrastructure spending. The Dow transports have run up 10.0% since Nov. 8 while the Dow industrials have gained 8.2%.
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Stifel analyst John Larkin wrote in a note to clients that the new administration’s policies could support truckers, but “we think it is unlikely that all are implemented in short order.” Meanwhile, there are signs that “fundamentals in the transportation sector remain challenged,” as the “slow, tepid macroeconomic environment” damping growth, especially when interest rates are rising.
Larkin downgraded Celadon Group Inc.
Heartland Express Inc.
Knight Transportation Inc.
Landstar System Inc.
Marten Transport Ltd.
and Werner Enterprises Inc.
to rate sell ratings from hold, saying the “stock market runs bullish while fundamentals remain soft.”
For Stifel, a sell rating means the analyst expects a total return, including dividends, of below -5% over the next 12 months. Only 4% of the companies covered by Stifel have sell ratings.
Landstar’s stock slumped 3.1%, enough to make it Friday’s biggest decliner among the Dow transports’ components. The stock had run up 21% in the month after the election to a record close of $90.40 on Dec. 8, but has lost 6.7% since then.
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The shares of Knight ran up 23% in the month after the election while Marten’s stock shot up 27%, with both closing at record highs on Dec. 8 before pulling back since then.
“It is our sense that the probability adjusted bullishness already factored into these names sits above the risk/reward curve, especially in a rising interest rate environment,” Larkin wrote. “Valuations remain at, near, or in some cases above all-time highs.”