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3 Low-Beta Transportation Stocks to Watch as Volatility Stays

Volatility gripping the markets in the United States this year refuses to die down. Due to this market bloodbath, the S&P 500, the teach-heavy Nasdaq and the Dow Jones Industrial Average have declined significantly on a year-to-date basis. Moreover, the August reading on inflation rattled markets. The August Consumer Price Index (CPI: an indicator of inflation) increased 8.3% year over year. The figure exceeded the 8.1% expectation of analysts despite the 10.6% decline in gasoline prices. A sharp rise in shelter and food costs induced this unwanted inflation reading, which increased 0.1% month over month.

The greater-than-expected August inflation makes it highly probable that the Fed, which has already hiked interest rates 225 basis points so far this year, will announce another sharp rate hike (probably another 75-basis-point increase if not 100 bps) at its meeting later this month. The Fed had already indicated last month that the rate hike will continue until inflation is at least down close to the 2% target rate. The central bank’s hawkish stance on taming the sky-high inflation stoked fears of an economic slowdown. This is because higher interest rates escalate the cost of borrowing.

At this juncture, it will be prudent for investors to have low-beta stocks on their watchlist as they aim to navigate a choppy market.  In this article, we focus on the widely-diversified transportation sector. For investors interested in the Zacks Transportation sector, low-beta stocks like C.H. Robinson Worldwide CHRW, Werner Enterprises WERN and Pangaea Logistics Solutions PANL should be on their radar in this volatile scenario. Notably, beta measures the volatility or risk of a particular asset compared to the market.

For example, if the market offers a return of 10%, a stock with beta of 3 will return 30%, which is highly impressive. However, when the market nosedives to the tune of 10%, the stock will sink 30%, which is devastating. Therefore, low-beta stocks are desirable, particularly in volatile scenarios like the present one.

Headwinds Confronting Transportation Sector

Geopolitical tensions between Russia and Ukraine further compounded the woes. The sanctions against Russia triggered the spike in oil price (up 48% in first-half 2022). Now this is undesirable for the transportation sector as fuel expenses represent a key input cost for any player in this sector. An uptick in fuel costs implies that bottom-line growth of transportation stocks is hampered.

Supply-chain disruptions having induced equipment shortages are also plaguing the sector. Labor-crunch is also not allowing sector players to meet the currency buoyancy in demand following the relaxation of coronavirus-related restrictions.

Due to the challenges, stocks in the Zacks Transportation sector have collectively lost 14.7% year to date.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Low-Beta Stocks the Way Forward

Now does this market volatility coupled with the unimpressive price performance of this sector imply that investors interested in the space shun these stocks? The answer is a categorical no.

To aid investors, we shortlisted three transportation stocks with low beta. We took stocks with beta between 0.60 and 0.85. These stocks have a Zacks Rank of either #2 (Buy) or 3 (Hold). Moreover, they are dividend-paying stocks, highly desirable in such volatile times. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Dividend-paying stocks not only provide a solid income stream but also have fewer chances of experiencing wild price swings. Dividend stocks are safe bets for creating wealth, as the payouts generally act as a hedge against economic uncertainty. In view of the tailwinds mentioned, it can be safely said that dividend-paying stocks emerge as preferred options compared to non-dividend-paying stocks in periods of high degree of market volatility as the present situation.

Our Choices

C.H. Robinson: CHRW is being aided by an improving freight scenario in the United States. Efforts to control costs also bode well. Measures to reward CHRW's shareholders instill confidence in the stock further.

In December 2021, C.H. Robinson, currently carrying a Zacks Rank #2, hiked its dividend to 55 cents per share (annually: $2.20) from 51 cents (annually: $2.04).  CHRW has a beta of 0.73 and a dividend yield of 2% in addition to a five-year annualized dividend growth rate of 3.83%. CHRW's payout ratio is 26% of earnings at present. Check C. H. Robinson Worldwide’s dividend history here.

C.H. Robinson Worldwide, Inc. Dividend Yield (TTM)

C.H. Robinson Worldwide, Inc. Dividend Yield (TTM)
C.H. Robinson Worldwide, Inc. Dividend Yield (TTM)

C.H. Robinson Worldwide, Inc. dividend-yield-ttm | C.H. Robinson Worldwide, Inc. Quote

Werner, based in Omaha, NE, is primarily focused on transporting the truckload shipments. Improvement in the freight scene in the United States is a positive for WERN.

Werner has a consistent track record of paying out quarterly dividends since Jul 1987. WERN, currently carrying a Zacks Rank of 3, hiked quarterly dividends twice in 2021.

Maintaining its pro-shareholder stance, on May 13, WERN’s board announced an 8% increase in its quarterly dividend to 13 cents per share.  Werner has a beta of 0.82 and a dividend yield of 1.3% in addition to five-year annualized dividend growth of 10.23%. WERN's payout ratio is 13% of earnings at present. Check Werner Enterprise’s dividend history here.

Werner Enterprises, Inc. Dividend Yield (TTM)

Werner Enterprises, Inc. Dividend Yield (TTM)
Werner Enterprises, Inc. Dividend Yield (TTM)

Werner Enterprises, Inc. dividend-yield-ttm | Werner Enterprises, Inc. Quote

Pangaea Logistics is currently Zacks #3 Ranked. The bullish sentiment surrounding the drybulk market is a huge blessing for PANL.

Pangaea Logistics has a beta of 0.65 and a dividend yield of 6.09%. PANL's payout ratio is 15% of earnings at present.  Check Pangaea Logistics Solutions’ dividend history here.

Pangaea Logistics Solutions Ltd. Dividend Yield (TTM)

Pangaea Logistics Solutions Ltd. Dividend Yield (TTM)
Pangaea Logistics Solutions Ltd. Dividend Yield (TTM)

Pangaea Logistics Solutions Ltd. dividend-yield-ttm | Pangaea Logistics Solutions Ltd. Quote


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C.H. Robinson Worldwide, Inc. (CHRW) : Free Stock Analysis Report
 
Werner Enterprises, Inc. (WERN) : Free Stock Analysis Report
 
Pangaea Logistics Solutions Ltd. (PANL) : Free Stock Analysis Report
 
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