Joseph L. Shaefer's  Instablog

“Keep on Truckin’...”  A noble sentiment and a great song (from “Truckin’ My Blues Away” by Blind Boy Fuller in the 1940s and various covers since then...)

It’s way better as a song than an investment, however.  Especially now.  If manufacturing is down, construction is down, and consumers are saving more and buying less (see last paragraph) what happens to the trucking business?  That’s what truckers do, after all – move manufacturing, construction, food and retail goods around the country.  Well, there’s still food anyway…

The chart below, courtesy of Sy Harding, says it all for Transportation writ large.  (You owe it to yourself to visit Sy’s excellent blog at http://syhardingblog.com/new/.   He is rated one of the top market-timers of all time…)

The DJ Transportation Index often leads the Industrials.  Why?  Simply because an early decline in shipments foreshadows a drop in earnings at industrial, manufacturing and service firms.  As you can see from the chart above, with information through last week, it doesn’t look good.

The Transports are more than just trucking, of course.  They include shipping firms, major airlines, air and freight services, and railroads, as well.  I don’t see any of those doing well as the recession drags on, no matter the happy talk and numbers manipulation from Wall Street and Washington.  But at least the railroads have coal for electricity and wheat and corn from farms to keep them afloat.  We gotta eat and we aren’t going to shiver in the dark.  Airlines are a disaster and they are an old story I’ve written about elsewhere.  But it is the trucking firms that have run the most in the last three months – and which I believe will suffer the most.

Of the trucking firms, YRC Worldwide (YRCW) , the combination of the old Yellow, Roadway, Glen Moore and other carriers, sells for less than $3.  Forget shorting it, even though its results may be dismal. 

JB Hunt (JBHT), Landstar (LSTR), Arkansas Best (ABFS), Old Dominion (ODFL), Werner Enterprises (WERN), and Marten Transport (MRTN) all look weak to me and will likely decline upon any extended recession in manufacturing and construction.

But the two that I believe offer the best opportunity for short-side profits are Con-Way (CNW) and Saia (SAIA.)  Both currently have so-so sales, neither have been able to translate those sales into earnings for the past year, even during the Harvesting of the Green Shoots period this past three months.  I don’t see them creating anything but losses going forward. 

Something may be up with SAIA.  It roared ahead on today's down day, up 6% to 16.77.  It opened at 16.50, a nice gap opening that often indicates the rumor, if not the reality, of good news.  Unless the news is that someone outside the industry is taking them over, I just don’t see the “unknown” good news as coming to fruition.  A takeover from inside the business would be just one sick puppy trying to nurse another sick puppy back to health.  The stock is up from its low in the last year of 7.02 (and more than double it’s March 9 opening low of 8.14.) 

Con-Way is 32 today, up from its March 9 low of 13.20.  That’s up 242% in 3 months.  I say it’s also ripe for a fall.  I’ve looked at TruckingBoards.com (yes, there really is such a website) to see if there is any chatter among the drivers as to why either of these should be up like this.  Nada.  Zilch.  Bupkus.

We’re short both stocks.  We initiated the trades today, 15 June 2009, shorting SAIA at E-Trade and CNW at TD Ameritrade.

For a quick look at some other industries that will be affected as Americans pay down debt and begin to fix the mess the aforementioned Wall Street and Washington got us into, see our just-published  “A Nation of Savers...” here.

DISCLOSURE: Short CNW and SAIA