J.B. Hunt Transport Services, Inc. (JBHT)

J.B. Hunt can service any transport need from raw to finished goods, all the way to your house. The company is structured to provide service that will allow a customer to operate efficiently for a competitive rate. J. B. Hunt has top of the line management, financially sound, diversified in the transportation industry, with a quality reputation and is partnered with great customers.

This isn't necessarily "overvalued" by a strict definition. Based on historical earnings and cash flows, I come up with a valuation around $29. However, from a long-term macroeconomic perspective, I am extremely bearish on the trucking industry.

There are several potential headaches developing for the trucking industry:

(1) Rising oil prices eat into trucking companies' profits like nothing else out there. Unfortunately, high oil prices are simply going to become a way of life over the next decade. Even with the greatest demand destruction event of most of our lifetimes, oil only fell to $35/barrel and that was DIRT CHEAP!!! Remember back in the '90s when $20/barrel oil seemed expensive? Those days are gone. The new paradigm will be a world where oil hovers around $70/barrel at the very least, and it will slowly rise over time.

(2) The American highway system is underfunded and being subsidized via general tax revenues. Meanwhile, the entire system is overburdened and states are dealing with record shortfalls. What's the solution? Either states are going to have to (a) raise gasoline taxes, (b) implement more tolls, or (c) let the highways decay. None of those options are winners for truckers.

(3) Rail is becoming more popular again and there will continue to be pressure from environmentalists (and a more green-conscious corporate world) to move towards shipping via rail over trucks, when the option is feasible. And since truck-based shipping is getting more expensive, corporate finance gurus will become more and more friendly to this idea.

All in all, I believe the long-term trends are very unfavorable for the trucking industry and I wouldn't want to invest in trucking companies under any circumstances. At $29, JB Hunt (JBHT) is near what-could-be a "fair valuation" point if you assume that they are able to earn what they did in FY '08 permanently (with a minimal 3% growth rate). Profits are already falling off a bit due to the economic crisis, so that valuation might be a bit on the aggressive side.

I can't say for certain how quickly any of these macroeconomic shifts will happen or how severe they will be, but I think around $29, the S&P 500 is a better bet than the JBHT.