So long as transportation stocks are ticking higher, the stock market is much less susceptible to a price retrenchment.
The Dow Jones Transportation Average just blew past 8,500, recently hitting a new record-high after taking a well-deserved break around mid-July and August.
Airline stocks led the index’s recent price strength. Some examples: JetBlue Airways Corporation (JBLU) was $8.00 a share in May, now it’s pushing $13.00. Meanwhile, Southwest Airlines Co. (LUV) was $20.00 a share at the beginning of the year, recently hitting a price of more than $33.00 for a new all-time record-high.
But it isn’t just airline stocks that are doing well on the Dow Jones Transportation Average; railroad stocks and trucking companies are pushing through to new highs, too, and earnings estimates for a lot of these companies are increasing, especially for 2015.
It may seem like an old-school concept, but strength in transportation stocks is still a leading indicator for the broader market. Price strength in these stocks often shows up at the beginning of a new business cycle.
Union Pacific Corporation (UNP) is one of my favorite railroad stocks for investors and it’s a great benchmark for determining your investment strategy, even for those not interested in the company. Monitoring this stock is a great way to gain market and economic intelligence.
This position still has good potential for further capital gains and earnings forecasts have been going up across the board—including estimates for the company’s third and fourth quarters, all of 2014, and all of 2015.
The stock’s been in a well-deserved price consolidation since May, but it recently broke out of this trend in a convincing manner. I would not be betting against the broader market if Union Pacific’s share price is moving upward.
The position is up almost six-fold since the March 2009 low, and the company’s dividends have been increasing steadily.
It’s a great time to be in the railroad business. If the market for transporting coal has been one of the few soft areas, the transportation of oil and sand for hydraulic fracturing is providing a huge boost to operations. (See “One Industry That’s Holding Up the Rest.”)
Laggards among transportation stocks include two big package delivery companies: United Parcel Service, Inc. (UPS), which has been trading between $95.00 and $105.00 all year long and seems to be a bit stuck at its current level just under $100.00; and FedEx Corporation (FDX), which has similarly been pretty lackluster this year on the stock market. Mind you, these stocks are still close to their all-time highs. Plus, United Parcel offers a current dividend yield of approximately 2.8%.
The best stocks to keep an eye on within the universe of transportation stocks continue to be the railroads, followed by airlines.
Union Pacific is right close to the $100-billion valuation mark. It is a serious benchmark stock, not only within its industry but for the U.S. economy and stock market as well. If Union Pacific is still being bid by institutional investors, it’s a great sign for the broader market.
Transportation stocks are leaders. Their price strength (which has been tremendous within the last few years) is representative of a new cycle and a bull market in equities.