Top broker tips 3 transport stocks to outperform as oil prices fall

Credit: drpepperscott

Shares in transport-related companies are outperforming the market as the price of crude oil posted a big fall in overnight trade on anticipation that more supply is about to hit the market.

While the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index slipped 0.5% in afternoon trade, the share prices of Qantas Airways Limited (ASX: QAN), Brambles Limited (ASX: BXB) and Transurban Group (ASX: TCL) are heading in the opposite direction.

These companies are directly impacted in a negative way by high oil prices, but investors shouldn’t worry if the crude price were to stop falling as the impact on some in the sector may not be as large as feared, according to Credit Suisse.

The broker thinks that logistics group Brambles is a case in point with the stock performing poorly since management highlighted growing cost pressures on its operations.

But Credit Suisse thinks this is an “attractive entry opportunity” to the stock and it has slapped an “outperform” rating on Brambles with a price target of $10.25 a share.

“Lumber and transport costs are now running at +41% YoY [Year-on-Year] and +8% YoY, respectively, higher than at December 2017 (lumber: +9%; transport: +6%),” said Credit Suisse.

“We think the impact will be more severe for BXB’s competitors (PECO and Whitewood) due to their lower scales and weaker margins than BXB.”

Airline Qantas is another the broker is bullish on and its recent code sharing agreement with Air France has given Credit Suisse another reason to urge investors to buy the stock with a price target of $7.15 a share.

Coincidentally, a survey by UBS is also pointing to more blue skies ahead for our national carrier. The broker interviewed just over 2,000 Australian business and leisure travellers and found that most were planning on increasing their travel spend for the rest of 2018.

Business travel is expected to grow faster at around 9% YoY, while leisure is tipped to grow by 5% YoY.

Meanwhile, poorly performing rail operator Aurizon Holdings Ltd (ASX AXJ) also represents a good buy in Credit Suisse’s book.

The stock has been underperforming on news that BHP Billiton Limited (ASX: BHP) is thinking about cutting its 4-5 million tonne coal-haulage contract with Aurizon.

“We think BHP is unlikely to revise down contract volumes due to exclusivity (BHP precluded from passing contracted volumes to AZJ’s competitors) and the 2-year notice period required to revise down volumes,” explained the broker.

Credit Suisse has an “outperform” recommendation on the stock with a $4.85 price target.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Brambles Limited. The Motley Fool Australia owns shares of and has recommended Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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