Keep On Trucking!

October 25, 2021  |  Michael Reilly

While many investors focus their attention on the Dow Jones Industrial Average, it’s the Dow transportation stocks that deserve a closer look.

That’s where savvy investors are finding opportunity and the possibility for outsized gains.

But don’t wait because these transportation stocks are speeding toward record highs and are at their highest level in nearly five months.

Take a look at this chart of the Dow Jones Transport Average. See the sharp rise in Transports since early October?

Moves like this don’t happen without an overwhelming amount of demand from the big institutions that drive markets higher.

If you think about it, this really shouldn’t be too surprising as companies continue to struggle to meet unprecedented demand, deal with supply chain bottlenecks, and the need to move goods around the globe.

Under the surface, railroads and truckers have been the main driver leading the transportation rally. But there is another transport group that’s been overlooked (more on that in a minute).

The chart below shows the Dow Jones Railroad Index, moving above its previous highs on its way to new record highs. Rails are currently the strongest part of the transportation group.

Here’s a chart of one of the leaders in the RailRoad index, Union Pacific Corp (UNP) – it too is moving to record highs.

But it’s not just railroads rallying – truckers are also driving higher (see what I did there?)…

J.B. Hunt (JBHT) gapped higher last week and barely looked back on its way to record highs.

And Landstar (LSTR), is trading above its early September peak – reaching its highest price in five months.

While one of the most widely watched indexes in the world – the S&P 500 index, has managed gains of 4.27% during the previous three months, these transportation stocks have doubled, tripled, or quadrupled the index return.

The S&P 500 index gained +4.27%, while:

  • Union Pacific Corp doubled the S&P’s return, gaining +9.92%
  • Landstar Systems tripled the S&P’s return, gaining +12.88%
  • JB Hunt Transports quadrupled the S&P’s return, gaining +19.79%

Individual stocks not your thing? Here’s a price chart of the iShares Transportation Average ETF (IYT).

Investor Tip: Investors can be well rewarded for digging into ETF holdings and looking at the parts rather than the whole. Here’s the Industry breakdown of IYT.

Truckers and railroads make up nearly 50% of the ETF’s holdings with year-to-date returns of 46.19% – that’s more than two times the return of the S&P 500 index.

But take a closer look at Marine… these are cargo shippers (often dry-bulk shippers). This is the area I mentioned earlier that wasn’t garnering nearly enough attention.

This sub-industry group of Transports makes up less than 8% of the iShares ETF, but prices have exploded to the upside, leading to returns in excess of 85% YTD.

For comparison, I’ve run a performance analysis of various Transportation stocks vs. the S&P 500 and a Transportation ETF, the SPDR S&P Transports (XTN).

This is a good example of how it can be profitable to dig into an ETF’s holdings to find those hidden gems.

However, I’ll add a simple disclaimer that investing in ETFs can provide greater diversification and avoid individual company risk – so trade accordingly.

Transportation-related stocks, including truckers, railroads, air, and sea, are all positioned to enjoy record profits as demand for goods creates unprecedented supply-chain bottlenecks with no end in sight.

Transports are an area I’ll be keeping a close eye on as industries continue to grapple with how to get their products to demanding consumers.

Until next week, safe investing.

PS: Want these kinds of insights applied directly to your portfolio awe see them? To make the whole investment process easier, give us a call. We’re opening our doors to new investors who have portfolios valued over $500,000. If you’d like to schedule a free 1-hour consultation to review your portfolio, click here.

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