Barclays Sees Brexit Effects Spreading To Transport Stocks

Barclays analyst Brandon Oglenski sees the effects of Brexit percolating to transport stocks. The analyst sees fundamentals changing in the transportation sector in the wake of the Britain's preference to exit the EU.

He likes FedEx Corporation FDX, Canadian Pacific Railway Limited (USA) CP, C.H. Robinson Worldwide, Inc. CHRW and Expeditors International of Washington EXPD.

For instance, he pointed out that the USD is trading higher while commodities are weaker. The vote has also created a situation where analysts and investors now expect the interest rate to remain low for the foreseeable future.

Oglenski pointed out that interest rates and higher inflation are normally the factors behind robust freight pricing environments. Also, the commodity prices will be under pressure due to a strong USD; a strong USD would pose material headwinds for railroad demand.

Barclays sees transportation stocks not as overtly expensive, but also not dirt cheap. "We still see plenty of downside potential if economic conditions worsen. As demonstrated by recent negative earnings announcements from Canadian Pacific and Werner, the outlook remains subject to material downward revision as expectations remain linked to economic expansion," the analyst explained.

He added, "With earnings and valuation downside representing about 15–20 percent from current stock levels relative to realistic upside of slightly less, we think investors should stay focused on 'cheap' asset based stocks such as CP and FDX, or continue to own more defensive asset-light names such as CHRW and EXPD."