Why These Stocks Are a Leading Indicator of the Market and What They Foresee Now

Why the Cycle in Transportation Stocks Isn't Over YetIt’s no surprise that the railroad business is doing well. We’ve been looking at Union Pacific Corporation (UNP) and other railroad stocks consistently in these pages for a number of years.

But not only are pure-play railroads doing well, offshoots within the industry are also booming.

It’s a good time to be in railroad stocks, and if you believe that the economy is ready to experience a new business cycle like I do, then these stocks have a lot more legs in this market.

I still like Union Pacific and Canadian National Railway Company (CNI) both for capital gains potential and income for investors.

Advertisement

The railroad business isn’t complicated. If there is demand for the shipment of freight, railroad companies add railcars. Accordingly, a company that manufactures railcars and other related products is likely doing pretty well considering how strong railroad stocks have performed over the last several years.

The Greenbrier Companies, Inc. (GBX) is a company we’ve looked at before. This business is headquartered in Lake Oswego, Oregon and business conditions are pretty good.

The company manufactures railcars for the North American market as well as Europe. But it’s not just a pure-play railcar supplier; the company makes barges for marine transportation and also sells specialized industrial fabrication for electrical, construction, and energy customers.

A lot of stocks related to the transportation/freight/railroad industry are doing great. The Greenbrier Companies is riding a wave of new manufacturing demand, and the stock just hit a new all-time record-high after reporting another great quarter. (See “Why These Four Rail Picks Are on My Radar.”)

According to the company, its bottom-line earnings for its third fiscal quarter of 2014 (ended May 31) doubled to $33.6 million, or $1.03 per share, compared to the same fiscal quarter last year.

The company’s revenues were up 18% comparatively to $593 million and management reported that all three of its principle businesses improved their financial performance comparatively.

Of note in the company’s recent earnings report was its railcar order backlog, which is currently around 26,400 units, representing about $2.75 billion in total.

The backlog is way up from the previous quarter (ended February 28, 2014) of 15,200 railcar units worth approximately $1.54 billion.

This position is closing in around $70.00 a share. It was $22.00 one year ago.

I believe the price momentum with these kinds of stocks is sustainable and that The Greenbrier Companies, along with Union Pacific and Canadian National Railway, will keep ticking higher in the absence of a stock market shock.

Railroad-related businesses may not be of interest to everyone. They certainly aren’t typically front-page news. But they are great benchmarks, and you can gather a lot of market intelligence from related earnings reports, even if you aren’t interested in the sector specifically.

It’s old school for sure, but I do believe that transportation stocks are leading indicators for the rest of the market and the general economy. The cycle in transportation stocks isn’t over and that’s an important catalyst for the broader market.