Jan 17, 2025
Bill Gates recently made a large bet on a sector that many other investors have overlooked over the past year. A recent filing shows the Gates Foundation Trust, which manages the investment assets of the billionaire's charitable organization, added just two stocks to the portfolio in the third quarter of 2024: shipping giant FedEx (FDX) and truck manufacturer PACCAR (PCAR).
The philanthropist and Microsoft co-founder added one million shares of each company to his portfolio during this period, worth a combined $373 million.
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Both stocks are part of the transportation sector, an economic bellwether which has been beaten down in the last few years amid slow consumption and the so-called freight recession. President-elect Trump’s proposed tariffs may also deliver a blow by raising prices and reducing demand. That makes Gates’ bet on the sector a contrarian move.
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Gates hasn't commented on the investments, but the buys signal a more optimistic outlook for transportation and the American economy in 2025 and beyond. It could also be an indication of attractive valuations. Both stocks have a forward price-to-earnings (PE) ratio of 13.8.
Fortunately, such valuations are common across the transportation sector right now. Here’s two other options for investors who like Gates believe the sector is going to accelerate.
UPS
United Parcel Service (UPS) is perhaps one of the most well-recognized brands in the transportation sector. The company’s brown trucks and brown uniformed employees are icons of parcel deliveries in many parts of the world.
Founded in 1907, the firm currently employs around 500,000 people across more than 200 countries and territories, making it one of the largest logistics networks in the world. However, the stock has been on a downtrend for years. It’s currently trading at $129.94 — 44% lower than its peak in early-2022.
But there was good news last quarter. "On our last earnings call, we said that the second quarter would not only be the bottom, but a turning point for our performance, and that we would return to revenue and profit growth in the third quarter, which we did,” said UPS CEO Carol Tome in the latest earnings call with analysts.
Recently, Bernstein analyst David Vernon raised his price target on the stock from $172 to $179, and Bank of America analysts upgraded the stock to Buy from Neutral, with both notes citing the company's focus on pricing.
Meanwhile, the stock trades at a forward PE ratio of 14.93 and offers an attractive 5.02% dividend yield. For investors seeking an undervalued, contrarian bet on the transportation sector, UPS should be on their watch list.
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iShares US Transportation ETF
Buying individual logistics, trucking and railroad stocks isn’t the only way to get exposure to a rebound in the transportation sector. You can also consider exchange-traded funds. For example, the iShares US Transportation ETF (IYT) enables you to access a broad mix of market leaders in this segment.
The fund has 45 holdings and the top five by weight are Uber, Union Pacific, UPS, United Airlines and Delta Air Lines. The portfolio’s PE ratio is 23.1, while the expense ratio is 0.39%.
Since its inception in 2003 until the end of last year, the fund has delivered an average annual return of 9.47%. In the last year, it's up almost 13%, which is much lower than the broader market's gains during this same period of 25%.
Investors looking for a broad and diversified bet on the transportation sector should keep an eye on this fund.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
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