Transportation Sector Is Ready For Takeoff

| About: iShares Transportation (IYT)

Summary

IYT is setting up for an imminent breakout based on an improved economy, anticipated infrastructure spending, decreased regulations and return of local manufacturing jobs.

The DJ transportation aggregate forward P/E Ratio is 16.7, nowhere near the high of 19 seen back in late-2014. Transportation stocks are not overly-expensive at this P/E Ratio.

The ROE for each of the 20 stocks held by IYT is quite good, ranging from 6% up to 237%.

The only concern is the high debt level for CAR if interest rates should rise. However, CAR only represents 2.8% of the fund's assets. Therefore not a major concern.

The % allocation to sub-industries is well distributed, thus risk is minimized. I view IYT to be a relatively low risk investment that should generate profits in the next year.

The iShares Transportation Average ETF (NYSEARCA:IYT) is taxiing on the runway, preparing for what appears to be an imminent takeoff. The engines have been revving since Nov 7, 2016 when Trump won the presidential election. With inflation starting to show signs of life, the job market firming up and the anticipation of Trump's policies (infrastructure spending, decreased regulations and manufacturing jobs), the transportation industry is ready to fly. The IYT share price is near an all-time high, sitting comfortably above long term support.

The iShares website lists the P/E Ratio for IYT at 18.7. Using Portfolio123, I estimated the forward-looking P/E Ratio of the DJ transportation stock universe to be 16.7, nowhere near the high of 19 seen back in late-2014. Therefore, I don't consider transportation stocks to be overly-expensive at present.

IYT holds 20 stocks and a quick look at the company fundamentals shows that the Return on Equity (ROE) for all 20 stocks is quite healthy.

Company

ROE

Dbt/MktCap

United Parcel Service, Inc. (NYSE:UPS)

236.70%

0.13

American Airlines Group (NASDAQ:AAL)

56.82%

0.92

Avis Budget Group, Inc. (NASDAQ:CAR)

49.39%

3.90

C.H. Robinson Worldwide Inc. (NASDAQ:CHRW)

42.63%

0.05

Delta Air Lines, Inc. (NYSE:DAL)

37.80%

0.17

J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT)

31.84%

0.09

United Continental Holdings, Inc (NYSE:UAL)

31.65%

0.43

Alaska Air Group, Inc. (NYSE:ALK)

30.48%

0.22

Southwest Airlines Co. (NYSE:LUV)

28.41%

0.08

Landstar System, Inc. (NASDAQ:LSTR)

27.23%

0.03

Expeditors International of Washington, Inc. (NASDAQ:EXPD)

23.56%

0.00

JetBlue Airways Corporation (NASDAQ:JBLU)

22.41%

0.19

Union Pacific Corporation (NYSE:UNP)

20.83%

0.16

Matson, Inc.(NYSE:MATX)

19.70%

0.51

CSX Corporation (NYSE:CSX)

14.69%

0.25

Norfolk Southern Corporation (NYSE:NSC)

13.56%

0.28

Ryder System, Inc. (NYSE:R)

13.10%

1.11

FedEx Corporation (NYSE:FDX)

12.55%

0.26

Kansas City Southern (NYSE:KSU)

11.96%

0.25

Kirby Corporation (NYSE:KEX)

6.04%

0.19

(Source: Portfolio123)

There is one company with an alarmingly high debt level. With a Debt/MktCap ratio of 3.9, CAR appears to be a risky investment, especially with the expectation of higher interest rates down the road. But CAR represents only 2.8% of the fund's assets. Therefore I don't consider CAR to be a major concern.

The % allocation to sub-industries is well distributed , thus risk is minimized. The distribution is shown below.

I view IYT to be a relatively low risk investment, primed to lead the financial markets to new highs.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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