Truckload Could Have Some Upside, But Heartland Express Is Harder To Love As The Play On It

Although transports aren't a bad way to play economic recoveries, the stocks of truckload trucking companies can be frustrating if you're not familiar with them. Stocks often trade up in anticipation of higher rates, then sell off when those rates actually materialize. To that end, spot truckload rates are about 30% higher than a year ago (and were recently up 40%), but Knight-Swift (KNX), Werner (WERN), and Heartland (HTLD) are all 10% to 20% off of recent peaks, even though contracting pricing should improve by double digits relatively early in 2021.

I do think that the truckload sector is likely undervalued today and offers a pretty good upside/downside trade-off, but I'm not sure Heartland is the best play on that opportunity relative to Knight-Swift and Werner. Heartland had a good long-term track record where profitability is concerned, but margins have been falling for over 15 years on a core basis and are now pretty close to Knight-Swift's and Werner's. Heartland also paid a high price to build a national footprint and has yet to really successfully leverage that footprint.

The bull/bear debate basically comes down to this - Knight-Swift and Werner likely offer "safer" upside, but if pricing really firms up next year and Heartland has finally found the right combination to unlock the potential of its footprint, there's more upside here. This is not a well-liked stock, though, and the long-term differences in stock returns between Heartland, Knight-Swift, and Werner aren't just a fluke.

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Truckload Could Have Some Upside, But Heartland Express Is Harder To Love As The Play On It