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Transportation Stocks Keep On Truckin’

20 May 2013 in Trading Ideas

As remarkable as the run-up has been in this year’s stock market, the surge in transportation stocks has been even more impressive.

The Dow Jones Transportation Average has surged 22.5% this year, stealing some thunder – if not major headlines – from the Industrial Average’s heralded crossing of 15,000 and year-to-date increase of 16.6%.

Fueling this rise has been mounting evidence of the sector’s health. As Investor’s Business Daily noted recently, the For-Hire Truck Tonnage Index, which represents two-thirds of manufactured and retail goods carried by all domestic freight transport modes, rose for the fourth month in a row in February – its longest winning streak since late 2011.1

That bullish report helped inspire Jefferies analysts Peter Nesvold and Tavio Headley to project 2013 as the “year of transports,” according to IBD. The analysts said their channel checks suggest that truckloads continue to exceed year-over year levels, and that the rebound in transportation stocks suggests inventory restocking is under way after destocking in the second half of 2012 ahead of the fiscal cliff deadline.

This possibility of continued outperformance of transportation stocks forms the thesis for our new Transporting America motif, a portfolio of stocks of companies offering transportation and related support services.

transporting america

Also driving the performance of transportation companies and their stocks has been the US energy boom that has resulted in not only an increased demand in transportation services to move new energy supplies, but has also contributed to lower energy prices.2 The price of oil, for example, has not touched $100 a barrel since September 2012.

In addition, airline stocks have performed well in recent months as operators have enjoyed increased pricing power due to reduced travel capacity on routes and massive merger activity.3

Over a longer timeframe, transportation stocks could be at the mercy of the US economic recovery, which in no way appears to be out of the woods. A slump in demand, or an uptick in energy prices, could weigh on future returns.

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However, those investors still bullish on the continued upside in transportation stocks may find the latest motif an attractive alternative to consider.

1Trang Ho, “Jefferies: Transport Stocks to Outrun Market in 2013,” investors.com, March 20, 2013, http://news.investors.com/investing-etfs/032013-648684-transportation-stocks-beating-broad-market-in-2013.htm, (accessed May 16, 2013).

2Frank Byrt, “8 Stocks Benefiting from North America’s Energy Boom,” cnbc.com, June 15, 2012, http://www.cnbc.com/id/47831360, (accessed May 16, 2013).

3Jeff Macke, “Sequestration Flight Delays Not Hitting Airline Stocks…Yet,” Yahoo Finance, April 22, 2013, http://finance.yahoo.com/blogs/breakout/sequestration-flight-delays-not-hitting-airline-stocks-yet-182430221.html, (accessed May 16, 2013).