Planes, Trains and Automobiles: 5 Stock Picks for 2020

Each year, MoneyShow asks the nation's leading financial newsletter advisors for their top stock ideas for the coming year. In this year's Top Picks 2020 Report, five experts chose their favorite stocks from among the airline, railroad and auto sectors. Joe Laszewski, Stack Financial Management Delta Air Lines, Inc. is viewed as a premium brand within the airline industry and is considered by many to be the best run airline. DAL's focus is on margin improvement through operating efficiency and long-term cost management. Specifically, Delta is improving margins and lowering per-unit fuel costs by retiring low-seat aircrafts in order to simplify their fleet and increase traffic on larger narrow-body aircrafts. DAL has also been able to improve efficiency and grow revenue by shifting their pricing mix to focus on more premium cabin seating options. The company's ability to improve operating efficiency is evident through the notable increase in two key industry metrics -- Passenger Revenue per Available Seat Mile (PRASM), and Average fare per passenger mile (Yield). While the airline industry has its share of risks, valuation metrics provide ample upside opportunity. Highlighting its best-of-breed nature, DAL produces above average margins when compared to peers. While this comes at a price, the relative valuation premium to peers is small considering their consistently superior profitability and premium brand. Recently trading at a trailing P/E of 8.4 and a dividend yield of approximately 2.7%, DAL presents a unique value opportunity today. At Stack Financial Management, we analyze stocks using four key factors: Value, Growth, Quality, and Technical. Utilizing these four components, we create a proprietary score which ranks stocks on a relative basis. Delta Airlines ranks high today primarily due to its attractive value characteristics, while still offering strong scores for both quality and growth. Fleet modernization, fare segmentation, and cost control give us confidence that DAL can continue to grow earnings even if global economic growth rates remain soft. (Note: Clients and individuals associated with Stack Financial Management hold positions in, and may from time to time make purchases or sales of, this security.) Douglas Gerlach, Investor Advisory Service Spirit Airlines is an ultra low-cost carrier operating 600 daily flights to 75 destinations in 16 countries. The ultra low-cost model has been popular in Europe for many years and seems to be gradually gaining favor in the U.S. as well. Spirit is leaning into the opportunity. It ended 2019 with about 145 planes in operation, double the size of its fleet at the end of 2015. Its growth plans call for an additional 48 planes delivered over the next two years, approximately 15% growth per year. At the end of the day, only half of revenue comes from base ticket fares, with the other half coming from upcharges and ancillary revenues. Even with the upcharges, the company claims that its all-in price remains about one-third lower than competitive carriers' all-in prices. One of the factors that attracts us to Spirit is its young, standardized fleet of Airbus 32 aircraft. Owing to its fast growth, Spirit's fleet is actually the youngest among major carriers. This industry is no place to invest going into a recession, but an investor betting on continued, steady economic growth may find a lot to like here. The company's growth story is simple -- add more planes and more service routes. The pace of growth looks ambitious, but not wild. Even if growth is slower than hoped for, the low valuation could rise, and stockholders could make good money nonetheless. We don't see many pockets of deep value in the market as 2020 rolls in, but Spirit Airlines does look like one. Tony Daltorio, Growth Stock Confidential In 2017, a study estimated that the world's airlines would need about 637,000 new pilots over the next two decades to meet demand. That works out to be 87 new pilots entering the commercial ranks every day for the next 20 years! About 40% of that number will be needed just to replace the pilots globally that will be retiring over the next 20 years. The remaining 60% will be needed to cover all the additional flying airlines are expected to do over the next 20 years. The situation is even more dire in Asia (led by China), which will require another 230,000 pilots by 2030, more than quadruple the 2010 number. Bottom line: to meet the needs of the air travel industry will require the training of 50,000 pilots worldwide annually! That's where CAE Inc. comes in. It has the broadest global presence in the industry, with over 160 sites and training locations in over 35 countries. CAE has the world's largest civil aviation training network with over 50 training locations, more than 250 full flight simulators, over 2000 instructors and more than 160 aircraft. And while CAE is a market leader in civil aviation training, it addresses less than a third of what the company estimates to be a $3.5 billion training market. It says that 50% of the commercial pilots that will be active in 2027 have not begun training yet. CAE predicts there will be a need for 180,000 new captains and 250,000 new first officers over the next decade. That demand makes for a smooth glide path for CAE. I consider the stock a top pick for conservative investors over the coming year. Ingrid Hendershot, Hendershot Investments Having celebrated its 100th birthday in 2019, Canadian National Railway has become a major transportation and logistics company with a network that reaches from the Pacific to the Atlantic to the Gulf of Mexico. Operating the largest rail network in Canada and the only transcontinental network in North America, the company serves close to 75% of the U.S. population and all major Canadian markets. CNI carries more than 300 million tons of cargo for exporters, importers, retailers, farmers and manufacturers. It leads the North American rail industry in terms of efficiency and operating margins. Scheduled Railroading and Supply Chain Collaboration Agreements with ports, terminal operators and customers helps Canadian National Railway drive efficiencies across the entire supply chain. With a business model focused on cost efficiency and asset utilization, the firm generates highly profitable operations. Net profit margins have approximated 26% or better over the last five years. Over the same time period, the company has invested nearly $14 billion in capital expenditures to expand their network and build for the future. Canadian National is committed to long-term shareholder value creation through strong financial performance, dividend payments and share repurchases. The railroad is loaded with strong free cash flows, which have totaled more than $12 billion over the last five years. The firm has boosted its dividend for 23 straight years with the dividend compounding at a 16% annual growth rate since 1995. In addition, Canadian National Railway has repurchased C$9 billion of its common stock over the last five years. Long-term investors should hop aboard Canadian National Railway, a high-quality industry leader generating solid growth and profitable operations while also rewarding shareholders with growing dividends and share buybacks. Jim Pearce, Investing Daily's Personal Finance I believe 2020 will be a transition year for the stock market; that is one reason why I like Ford Motor . Its high dividend yield (6.6%) and low valuation (recently priced at less than 7 times forward earnings) should appeal to value investors. In 2018, Ford ranked third in domestic vehicle sales with a 14.4% market share compared to a 1.2% share for Tesla . Nevertheless, Tesla's stock market capitalization of $60 billion is nearly twice Ford's $36 billion valuation. However, the attention Tesla has drawn to battery-powered vehicles could ultimately prove to be Ford's salvation. Ford recently began taking reservations for its Mustang Mach-E battery powered vehicle, a tactic Tesla has exploited to generate gobs of free publicity for its new auto launches. Although sales of the Mach-E will not be large enough to substantively improve Ford's bottom line, the media exposure could recast the public perception of the company as a legitimate rival to Tesla. In the meantime, Ford is taking advantage of that diversionary tactic to shore up its operations here and abroad. Ford's third-quarter results include an 8% improvement in year-to-date operating cash flow and an 80% jump in adjusted free cash flow. That should keep Ford's dividend safe for the foreseeable future. From a longer term perspective, Ford's recently formed International Markets Group (IMG) will bring nearly 100 separate foreign markets together under a single management team. Those regional markets, which include India, Africa, Russia, and the Middle East, are growing twice as fast as Ford's primary markets of the U.S., Europe, and China. The Ford turnaround story will take years to unfold as the company pivots towards EV sales and expands its international presence. Over the past two years, Ford has traded between $8 and $10 and is currently at the midpoint of that range. I don't expect its share price to break out of that range until the company begins making deliveries of its Mach-E next fall, but until then you can buy Ford up to $10.

Planes, Trains and Automobiles: 5 Stock Picks for 2020

A recent study estimated that the world's airlines would need about 637,000 new pilots over the next two decades to meet demand.

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