Buy CH Robinson, Sell Werner Enterprises, JPMorgan Says In Review Of Transportation, Logistics Stocks

JPMorgan downgraded one freight carrier and upgraded another Wednesday in a review of the transportation and logistics sector, presenting a potential pair trade opportunity.  

The Ratings 

Analyst Brian Ossenbeck downgraded Werner Enterprises WERN from Neutral to Underweight and lifted the price target from $35 to $42. 

The analyst upgraded CH Robinson CHRW from Underweight to Neutral and set an $86 price target. 

The Thesis 

The Werner downgrade was triggered by concerns the company will miss its 2019 estimates, Ossenbeck said in the report. (See the analyst's track record here.) 

The CH Robinson upgrade comes as the share price has fallen closer to Ossenbeck's fundamental valuation figure, as well as the analyst's positive reaction to a newly created COO role at the company. 

Ossenbeck ranked seven major stocks in the truckload carriers and brokers group. Ranked in order of most to least favored, CH Robinson came in at No. 1, while Werner rounded out the list at No. 7.

What It Means For You

The tandem ratings update within a subsector could give investors a reason to double their exposure to future price movements by taking a long position in CH Robinson and selling Werner short.

If Werner does indeed miss 2019 estimates, and CH Robinson is truly at a more suitable long-term price than it was a few months ago, this trade offers upside potential with relatively mitigated risk.

Ossenbeck, who maintained a negative outlook for the group as a whole, said he considers CH Robinson a defensive stock that's benefitting from "flight to quality" as markets fall.

Shorting Werner carries unlimited risk if the stock rises, but if the whole group suffers, the short will likely pay off.

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