With weak oil prices and many analysts forecasting slow times ahead for the stock market, many investors may be wondering, where are there good times in this market? Well, I believe they’re still with airline stocks and railroad stocks.
Airline Stocks Pushing New Record-Highs, Starting with Air Alaska
Many stocks within the airline sector are pushing new record-highs and earnings are coming in strong, both due to improving revenues and lower oil prices.
Alaska Air Group, Inc. (ALK) continues to be a star within the group. A member of the Dow Jones Transportation Average, the company’s numbers were just plain excellent.
Alaska Air is buying back shares like crazy, and management just increased its dividend by 60% from the prior quarter. This company is one of only two airlines whose credit rating is investment grade.
According to the company, its GAAP (generally accepted accounting principles) earnings in the fourth quarter of 2014 improved to $148 million, up from $78.0 million comparatively. Total operating revenues grew eight percent in the most recent quarter to $1.3 billion. Aircraft fuel expenses, which include hedging gains and losses, dropped materially, falling 13% to $306 million during the quarter.
Management bought back 7.3 million shares, or 6.9% of the total float, in 2014. The stock was recently close to $40.00 in the October sell-off; now it’s pushing $70.00 with continued price momentum.
Most airline stocks are trading similar to Alaska Air. These stocks have helped the Dow Jones Transportation Average, which just crossed back up past 9,000 (a positive sign). Investors should keep an eye on transportation stocks. I don’t believe the broader market will break down without this index doing so commensurately.
These stocks are looking good with material fuel savings. It’s going to help reward investors both in terms of rising dividends and share repurchases, but also debt retirement, which the industry needs. (See “Union Pacific, Transportation Stocks Cashing In on Lower Oil Prices Heading into 2015.”)
But as I mentioned earlier, airline stocks aren’t the only ones in the transportation sector that appear to be experiencing good times (especially with lower oil prices).
Railroad Stocks Breaking Records, Too, Including Union Pacific
My favorite railroad stock for long-term investors to watch is Union Pacific Corporation (UNP). This company blasted higher on the stock market after reporting a great quarter on surging rail traffic activity.
Railroads are old economy and they don’t tend to make the headlines very often, but they are extremely good barometers on economic activity. Their operating results are worth your time, even if you aren’t interested in these stocks.
Union Pacific, in particular, set all kinds of financial records in its fourth quarter and full year 2014. The company’s fourth-quarter diluted earnings per share grew 27% to $1.61, which is an impressive gain for any business. Fourth-quarter operating revenues grew nine percent comparatively to $6.2 billion, with freight volume increasing in all business groups. Diesel fuel expenses dropped 10% during the fourth quarter, and total operating expenses only increased three percent comparatively. Finally, the company bought back 7.7 million of its own shares in the fourth quarter of 2014 at an average price of $113.77 per share.
Growth in industrial products is the key driver for this specific railroad company. And the reason for the increase in shipments? Growth in the housing market and auto sales, with shipments of lumber, steel, appliances, and cement on the upswing.
Other railroad companies are reporting good numbers. It’s a positive trend not to miss amongst all the noise.
All in all, it’s still a good time to be in transportation stocks and lower fuel costs are the icing on the cake.