Bill Alpert

Train and truck stocks got washed out with the April 2 tariffs announced by President Donald Trump. The levies were paused for 90 days of negotiations with foreign governments, but the pause ends Wednesday. Investors betting on recovery in the freight sector face another day of reckoning.

"We remain subject to extreme headline risk," writes Morgan Stanley's freight transport analyst Ravi Shanker in a Monday note. "Will we see a cliff now after the 90-day window expires?"

The S&P 500 has been setting records, but freight stocks are down around 10% this year. Transportation stocks have been out of favor for a while, as rail freight volumes flattened and truckers suffered through their own private recession.

With the freight haulers readying June-quarter reports, the best that Shanker can say is that the period was probably not as bad as investors think. Intermodal container shipments sank as expected, after Trump's April tariffs, but other freight volumes held up.

The back half of May and the month of June were seasonally strong for the haulers, he notes. Freight volumes have long been a favorite economic indicator for investors such as Warren Buffett, and Shanker says the sector's numbers suggest that the economy won't sink into a recession in this year's second half.

Still, he is pessimistic that June-quarter results will draw investors back into transport stocks. His price targets are below the current stock prices of the railroaders Norfolk Southern, CSX, Union Pacific, and Canadian Pacific Kansas City. He does see about 35% upside for Canadian National Railway stock, because that company's miserable 2024 results make this year an easy comparison.

The Morgan Stanley analyst is relatively optimistic on trucking stocks, betting that some of these long-unloved companies will manage to exceed investors' rock-bottom expectations. Shanker's price targets are some 50% higher than today's stock prices for Werner Enterprises, Schneider National, Knight-Swift Transportation Holdings, TFI International, and ArcBest. He also likes the logistics firms RXO and GXO.

Just one trucking company has remained popular on Wall Street, namely XPO. Shanker thinks the stock is now overpriced.

Ownership of rail and truck stocks is at a historic low. If June's earnings calls have an upbeat tone, and Wednesday's tariff news isn't terrible, Shanker remains hopeful that investors could be coaxed back into the cabs.

Write to Bill Alpert at william.alpert@barrons.com

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July 07, 2025 12:53 ET (16:53 GMT)

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