SuperModels Community
Join the discussion in the MSN Money SuperModels Community.
SuperModels
Recent articles:
• Holiday IPOs to warm your hearth, 11/16/2005
• A smarter way to spot winning stocks, 11/9/2005
• This just in: Value investors value newspapers, 11/2/2005
More...
| | SuperModels
11 transport stocks for shopping season
The transportation sector is really truckin' because America keeps on shopping. StockScouter's radar has pinpointed 11 companies at the head of the convoy.
By Jon D. Markman
Against all odds, expectations and probabilities, the economy is on the move. Americans may be slowing their purchases of homes, fretting about Iraq and tiring of their elected representatives. But they have not stopped shopping, much to the relief of retailers on the verge of the all-important holiday gift-buying season.
A key beneficiary of the surprising strength of shopping are companies that transport goods from ports to factories, from factories to stores and from stores to the public. These are primarily truckers, but railroads, airlines, ocean shippers, logistics managers and freight forwarders also benefit.
Now, you would think soaring energy prices would slam the brakes on the transportation sector. But you would be wrong, of course, because this is the reverso-world of stocks. The Dow Jones Transportation Average ($TRAN) is up 9.5% this year, while the Dow Jones industrials ($INDU), are essentially flat. Most of the gain has come in the past month as the prices of crude oil and gasoline have declined.
The Dow transports have, in fact, advanced to an all-time high this month, exceeding their prior high set in 1999. Many individual companies in the index have raced far ahead, and appear set to lead the market convoy for the rest of the year. According to Dow theory, the shares of transportation companies are expected to move ahead of industrial companies. (And if the industrials shares dont follow to new highs, by the way, its a bad sign for all.)
Related news and commentary on MSN Money
Back on Feb. 18 of this year, I explained this phenomenon in a column called A better index: The Diversified Dow 18 and, leveraging our StockScouter rating system, picked six Dow transports as leaders. Theyre up 14.5% since, a period in which the Dow industrials alone have traded exactly flat.
So who are the likely leaders of the next set of curves? Like last time, I will use our StockScouter system to choose potential winners. But now I will broaden the search out to include a wider variety of small- to mid-cap transportation stocks, as well. Heres the list:
| StockScouters top transport stocks | | Company Name | Market cap | SS | | % Chg YTD | Last Price | Price/Sales | Industry | | Celadon Group (CLDN, news, msgs) | $271 million | 10 | | 21.1 | 26.95 | 0.6 | Freight services | | AirTran Holdings (AAI, news, msgs) | $1.3 billion | 10 | | 49.0 | 15.94 | 1.1 | Regional airlines | | Knight Transportation (KNX, news, msgs) | $1.7 billion | 10 | | 24.8 | 30.94 | 3.3 | Trucking | | Vitran (VTNC, news, msgs) | $222 million | 9 | | 3.2 | 17.65 | 0.5 | Trucking | | USA Truck (USAK, news, msgs) | $307 million | 9 | | 58.8 | 26.99 | 0.7 | Trucking | | Marten Transport (MRTN, news, msgs) | $382 million | 9 | | 17.3 | 26.67 | 0.9 | Trucking | | Old Dominion Freight Line (ODFL, news, msgs) | $953 million | 9 | | 10.3 | 38.38 | 1.0 | Trucking | | Lan Airlines S.A. (LFL, news, msgs) | $2.3 billion | 9 | | 13.6 | 36.58 | 1.1 | Regional airlines | | UTi Worldwide (UTIW, news, msgs) | $3.1 billion | 9 | | 45.1 | 98.69 | 1.2 | Freight services | | Norfolk Southern (NSC, news, msgs) | $17.8 billion | 9 | | 21.2 | 43.87 | 2.2 | Railroads | | Canadian National Railway (CNI, news, msgs) | $21.3 billion | 9 | | 26.4 | 77.44 | 3.7 | Railroads |
|
When you take a closer look at some of these smaller companies, you can find some very interesting stories. Consider Celadon Group (CLDN, news, msgs), which has amassed a market cap of $271 million and gets the StockScouter systems highest rating. It provides long-haul freight services focused on moving goods via 2,700 tractors and 7,200 trailers back and forth between the United States, Canada and Mexico. It has a dedicated Mexican operation as well as a dedicated Canadian operation, and also operates an e-commerce business providing savings to smaller trucking firms on essentials like fuel, tires and software.
Celadon's earnings earlier this month impressed investors with cost controls, improved pricing, strong driver recruitment and retention and a steadfast ability to increase revenue per tractor. These strengths enabled the company to improve margins faster than competitors, which was a key driver behind analysts decision to lift earnings per share estimates. According to Legg Mason analyst John Larkin, operating leverage at the company is so strong that each percentage point increase in profit margin translates to roughly 30 cents a share in fiscal-year 2007 earnings. Because the company has done a good job in the past of also buying and integrating smaller outfits, such as Burlington Motor Carriers, there is an expectation of upside to the numbers.
Vitran (VTNC, news, msgs) is another trucker that specializes in Canadian business. It is a nonunion company that provides less than truckload next-day and same-day services between the Great White North and the midwestern and southern United States. Vitran is growing at around 20% a year, has veteran management and is a potential acquisition target. Those factors, combined with a forward price-earnings multiple of about 11, give the stock plenty of room for further upside. Credit Suisse analyst Jason Seidel raised estimates earlier this month and noted the company is both improving margins and expanding operations, a great combination.
|
