The supply chain is the system that moves goods, services, and raw materials worldwide. Supply chain stocks include transportation companies (such as railroads, trucking companies, and shippers), delivery companies, and freight companies. They also include logistics companies, supply chain software businesses, and services companies.
Global supply chains have come under severe pressure in recent years due to:
- Trade tariffs
- Geopolitical tensions, such as conflicts in Ukraine and the Middle East, which are spilling over into trade disruptions
These pressures have led to negative revisions to earnings estimates, higher prices, and fears of a recession. For decades, increasingly interconnected and interlinked global supply chains have operated under Just-in-Time principles. Under this strategy, materials and products are moved just before they are used or sold, leaving the supply chain susceptible to sudden shocks.
Top supply chain stocks to consider
| Name and ticker | Market cap | Dividend yield | Industry |
|---|---|---|---|
| United Parcel Service (NYSE:UPS) | $86.4 billion | 6.45% | Air Freight and Logistics |
| CSX (NASDAQ:CSX) | $78.5 billion | 1.25% | Road and Rail |
| Old Dominion Freight Line (NASDAQ:ODFL) | $43.4 billion | 0.54% | Road and Rail |
| Trimble (NASDAQ:TRMB) | $15.2 billion | 0.00% | Software |
| Manhattan Associates (NASDAQ:MANH) | $7.2 billion | 0.00% | Software |
NYSE: UPS
Key Data Points
A combination of slowing economic growth and a natural correction in consumer behavior (a return to spending on travel and services rather than on products) hurt volume growth, putting pressure on margins. Additionally, the Trump administration's tariffs are creating considerable uncertainty among UPS's customer base.
UPS is addressing these issues while focusing on expanding in targeted markets such as healthcare and small and medium-sized businesses (SMBs). At the same time, UPS is deliberately reducing its low- or negative-margin Amazon (AMZN +2.02%) deliveries to focus on higher-margin deliveries within its network.
It may take some time, but UPS should recover as volumes eventually improve and the industry adjusts its capacity to meet demand.
2. CSX
There's been a quiet revolution in the railroad sector over the past decade. All the leading players, including CSX (CSX -0.59%), have adopted precision scheduled railroading (PSR) management techniques. The strategy aims to run the same volumes while using fewer assets. PSR practitioners enhance performance by closely monitoring key metrics, including car velocity, downtime, and train length.
NASDAQ: CSX
Key Data Points
Additionally, they tend to operate trains on fixed schedules from point to point, rather than the traditional hub-and-spoke model. The leading railroads have reduced their operating ratios (expenses divided by revenue), resulting in higher profit margins.
CSX and the other railroads are key players in the supply chain. However, they also play a role in alleviating some of the problems caused by supply chain dislocations. U.S. railroads will benefit from a shift toward onshoring -- a move encouraged by the difficulties many companies have faced in securing materials and components.
3. Old Dominion Freight Line
Old Dominion (ODFL -0.55%), one of the most respected names in the trucking industry, is a specialist in the less-than-truckload (LTL) shipping sector. Full-truckload (TL) shippers typically deliver a truckload to a single customer. LTL trucks can carry freight for multiple customers, a key advantage in a supply chain crisis, as customers are often willing to pay more to ensure critical components are delivered.
NASDAQ: ODFL
Key Data Points
Old Dominion sports some of the highest margins in the transportation industry. The company has made impressive gains over the past decade. Margin growth was especially strong during the 2020-2022 period when Old Dominion was able to be more selective about deliveries, given surging demand.
Although freight demand will naturally oscillate with the economy, Old Dominion is a high-quality operator in the LTL industry. Long-term LTL demand is likely to grow due to the growth in e-commerce deliveries, which require relatively small loads to be delivered as part of companies' online sales campaigns.
4. Trimble
Investors may wonder what a positioning technology company is doing on this list. The answer is simple: Trimble's (TRMB -0.99%) technology is on 99% of the top 200 trucking fleets in the U.S. The transportation and logistics segment accounts for approximately a quarter of the company's overall sales.
NASDAQ: TRMB
Key Data Points
Using Trimble's hardware and software, trucking companies can monitor and adjust their fleets in real time. By doing so, they can increase fleet utilization and reduce fuel costs.
Additionally, trucking is a vital component of the supply chain. Trucking companies transport raw materials and finished goods to distribution warehouses and, ultimately, to stores or directly to customers. As a result, Trimble's technology can improve return on investment across the supply chain.
5. Manhattan Associates
Manhattan Associates (MANH -2.90%) develops software to manage supply chain and inventory for the retail, wholesale, distribution, and manufacturing end markets.
NASDAQ: MANH
Key Data Points
Retailers are increasingly selling through various channels, whether in-store, online, by phone, or other means -- a move encouraged by the lockdowns imposed in response to the COVID-19 pandemic. It's a trend likely to continue into the foreseeable future, as the share of retail from online sources is expected to increase.
As a result, supply chain management is becoming more complex for retailers and logistics operations in distribution centers and warehouses. All of this plays to Manhattan's strength. The company's long-term growth prospects appear excellent, with Wall Street analysts forecasting high-single-digit revenue growth for the foreseeable future.
Pros and cons of investing in supply chain stocks
- Technology is driving improvements in logistics productivity and the need for specialized providers.
- Recent events have underscored the importance of supply chain resilience and the need for greater flexibility.
- Supply chain companies are highly dependent on their customers' spending patterns, which are often driven by cyclical factors.
- Supply chain companies can suffer if their customers' long-term prospects are in decline.
What to consider before investing in supply chain stocks
Given the new era of protectionism and the fracturing of global trade patterns, investors must always consider the impacts on the global supply chain and the pressures it faces from evolving trade policies.
The tariffs imposed on certain countries (notably China) have led to significant supply chain shifts, putting pressure on existing trading relationships. UPS' small and medium-sized business customers are having to shift to alternative suppliers, which is affecting delivery volumes. Whether U.S. trade policies are upheld in court remains to be seen, but their effects have been significant.
How to invest in supply chain stocks
- Open your brokerage app: Log in to your brokerage account where you handle your investments.
- Search for the stock: Enter the ticker or company name into the search bar to bring up the stock's trading page.
- Decide how many shares to buy: Consider your investment goals and how much of your portfolio you want to allocate to this stock.
- Select order type: Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay.
- Submit your order: Confirm the details and submit your buy order.
- Review your purchase: Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly.
Future outlook for supply chain stocks
The future outlook is normalization. Following the tumultuous years of lockdowns, supply chain crises, supply chain spending ramps (and then retractions, notably in e-commerce facilities), and impacts to global trade from tariffs and protectionist actions, the supply chain market is definitely looking to normalize in 2026.
One example includes UPS customers shifting suppliers in response to tariffs imposed on imported products from countries such as China. UPS hopes its customers will pick up delivery volumes through 2026 as they adjust their supplier relationships.
Another example is a contract logistics company, GXO (GXO +0.14%), which is back on a mid-single-digit growth path after it lost customers in 2023-2024 after a previous boom in investment during the COVID-19 lockdowns. The key to investing in the sector is understanding how normalization will play out and how it will affect profit growth for the stock you are looking to invest in.
Related investing topics
FAQ
Supply chain stocks FAQ
About the Author
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Manhattan Associates, Old Dominion Freight Line, and United Parcel Service. The Motley Fool recommends FedEx and Trimble. The Motley Fool has a disclosure policy.
