Seeking Alpha
Long/short equity, special situations, momentum, growth
Profile| Send Message|
( followers)  

The market rally we have enjoyed thus far was kicked off by the transports coming alive at the end of last year. The strength has continued, but there have been market jitters surrounding certain companies as quarterly figures have come in below expectations and/or whisper numbers over the last couple of quarters. It has been our belief that these jitters were baseless and simply a new wall of worry for this bull market to climb and after the recent reports from the likes of United Parcel Service (NYSE:UPS), FedEx (NYSE:FDX), and Norfolk Southern (NYSE:NSC) we believe our thoughts to be correct. Union Pacific's (NYSE:UNP) numbers were simply an outlier and we would expect that to turn around, especially with increased volumes of oil being shipped by rail and agriculture shipments set to soar. The shipment of vehicles should also continue to drive numbers and although we do not include it in the set of railroads we would buy right now, CSX (NYSE:CSX) will also benefit from all of this activity too.

Chart of the Day:

The Dow Jones Transportation Average broke through 7,000 yesterday and as we have said all along this bull is still healthy. The numbers from United Parcel Service will help today and we would suspect that FedEx, Union Pacific, Norfolk Southern and CSX rise as well. Continue to look for guidance from the transports in this market.


(Click to enlarge)

Source: Yahoo Finance

We have economic news today and it is as follows:

  • Durable Orders (8:30 a.m. EST): Est: 3.5% Actual: 3.7%
  • Durable Goods - Ex Trans (8:30 a.m. EST): Est: 0.3% Actual: -0.1%
  • Michigan Sent. - Final (9:55 a.m. EST): Est: 74.5 Actual:
  • Wholesale Inventories (10:00 a.m. EST): Est: 0.3%

Asian markets finished mostly lower today:

  • All Ordinaries -- up 0.22%
  • Shanghai Composite -- down 1.45%
  • Nikkei 225 -- down 2.75%
  • NZSE 50 -- up 0.59%
  • Seoul Composite -- down 0.60%

In Europe, markets are trading higher this morning:

  • CAC 40 -- down 0.08%
  • DAX -- up 0.17%
  • FTSE 100 -- up 0.13%
  • OSE -- up 0.55%

Transports Continue To Lead The Way Higher ...

FedEx shares have been performing quite well lately following the company's more bullish stance on its outlook and better numbers. We are also heading into the busiest season of the year for the company and a traditional buying time for investors looking to play the holiday season retail spike. Shares in United Parcel Service have also been moving higher and after their earnings report today their stock is set to open at a new 52-week high.

We would expect both FedEx and United Parcel Service to hit fresh 52-week highs today because the numbers coming out of the quarter were quite strong for United Parcel Service and could play quite well FedEx moving forward. What we really liked from the earnings report from United Parcel Service was that they first reiterated their full-year guidance for earnings to be between $4.65-4.85/share while also stating that retailers have been telling them that they expect robust online holiday sales - goods that will have to be delivered by United Parcel Service and FedEx. Looking at the comps, deliveries across the board were up 4.6% year-over-year with domestic growing at 3% and international up 6.7%. For the quarter United Parcel Service beat by $0.01 on the EPS consensus and came in-line with analysts' expectations on revenues.

FedEx is the more volatile stock, but watch for United Parcel Service to play a little bit of catch up with its rival today as the market digests its most recent results.


(Click to enlarge)

Source: Yahoo Finance

The recent news from these two names leads us to believe that the holiday season will come in stronger than expected and could surprise many who were exiting the transports expecting weakness from the government shutdown and lingering effects moving forward. That does not appear to be the case and this reiterates our belief that the dips in the transports are opportunities to buy.

Which Means Rails Should Fair Better Heading Forward ...

We know quite a few who were getting worried about the rails after Union Pacific's latest numbers and more cautious tone. What we have noticed is that the dip in Union Pacific's volumes did not translate to an across the board dip in volumes for the rails as a whole as Norfolk Southern posted good numbers and had good things to say. One has to look at the rails as a basket rather than individual transporters in our opinion because of the nature of the business. Each company has their own operating area and for the most part there is not a lot of overlapping track where these guys can compete against one another. So bad news for one is not necessarily bad news for another, it simply tells us where there is weakness is the economy geographically. One could do well owning just one name here, but we would prefer to see owners of a basket that gives one diversification across a few names (and thus geographical regions). One would find it easiest to simply buy Union Pacific and Norfolk Southern to achieve this diversification while leaving out a name such as CSX because CSX has a footprint which essentially overlaps Norfolk's. We are bullish the entire sector right now, but if we were constructing a portfolio this is how we would do it.

Source: Today's Market: Transportation Stocks Continue To Rise