With most investors are keen to focus on the SPDR Dow Jones Industrial Average (NYSE:DIA), they may want to set their sights on a different index from Dow Jones. That would be the transports, and they are certainly cooking.

Transportation stocks- which include airlines, rail roads and freight carriers- have performed better than the broad market this year and there is plenty of indication that good times will keep rolling. For investors, despite the sectors recent rise, the transports could be the key to sector gains in the new year.
Pre-Recession Levels 
It’s taken us a few years, but with the United States economic situation finally beginning to move in the right direction, freight traffic has been picking up steam. According to the U.S. Department of Transportation, its freight transportation services index jumped 2.7% in February on a year-over-year basis, while gaining 1.2% versus January’s numbers. This was the fourth consecutive month of increases. The DoT’s index measures output by a variety of means in the transportation sector- including railroad, air and trucking. However, over-the-road trucking continues shine as leading shipping method.
All in all, freight volumes are quickly approaching pre-recession levels.
That’s certainly bullish news for firms in the sector. As the recovery continues to progress forward and global industrial production keeps moving upwards, the transports will continue to benefit. Already we’ve seen profits at transport firms escalate since the beginning of the economic recovery as evident by Swift Transportation Company’s (NYSE:SWFT) recent robust earnings announcement. Many have handled the increased freight volumes without ramping up costs and many such as Arkansas Best Corporation (Nasdaq:ABFS) have re-priced contracts to reduce costs even further.
Given the bullish outlook on the U.S. economy and rising freight demand, the transports have clocked in a greater than 20% return this year. This compares to just more modest gains for the Dow Industrials and the S&P 500, which have risen by 14.5% and 13.6%, respectively.
SEE: Index Investing Tutorial

Yet, with the economic recovery still very much in the beginning stages in the U.S., the transports could be surging to new highs as the year progresses. Analysts at Jefferies believe the sector could tack on an additional 15 or more points of outperformance based on the historical swings in the index.
Moving Some Cargo 
Investors looking to add the sector do have a variety of choices. Perhaps the easiest is the iShares Dow Jones Transportation Average (NYSE:IYT).The fund tracks the previously mentioned Dow index and includes shipping stalwarts like railroad Norfolk Southern (NYSE:NSC) and supply chain firm Ryder (NYSE:R). Like its tracking index, the ETF has risen nicely over the last year and currently sits at a 52-week high. Likewise, investors can use the SPDR S&P Transportation (NYSE:XTN).
Perhaps no single company has been a bigger beneficiary of the return of freight traffic than YRC Worldwide (Nasdaq:YRCW). The trucking company's quarterly loss was smaller than analysts expected and it reported an operating profit for the first time in over six years. That’s huge for the firm who was almost delisted and traded for about 3 cents back in 2011. While the company still has a lot of work to do, YRCW has made significant progress on its turnaround plan. For investors, the good news at the trucking company could continue as economic conditions improve.

SEE: Turnaround Stocks: U-Turn To High Returns
As one of the world's largest third party logistics (3PL) providers, C. H. Robinson (Nasdaq:CHRW) could be a great all-around play on rising freight volumes. The company provides freight transportation and logistics services to customers across the globe. CHRW works with 56,000 transportation companies- including railroads, trucking companies, ocean carriers and airfreight companies- to help customers get deliveries and shipments. That’s profitable business as C.H. Robinson has managed to improve revenues and income consistently over the last decade. That’s provider shares with a growing 2.4% dividend.
The Bottom Line 
With the U.S. really beginning to move forward, investors may want to focus on the other main Dow index- The Dow Transports. The sector continues to rack up gains and many analysts believe that the sector will continue to outperform the broad market for the remainder of the year. For investors, that means loading up on the shippers, railroads and freight carriers.

At the time of writing, Aaron Levitt did not own shares in any of the companies or funds mentioned in this article.

Related Articles
  1. Investing Basics

    Is Stock Picking A Myth?

    Find out if mutual fund managers can successfully pick stocks or if you're better off with an index fund.
  2. Personal Finance

    An Introduction To Capital Budgeting

    We look at three widely used valuation methods and figure out how companies justify spending.
  3. Markets

    How To Choose The Best Stock Valuation Method

    Don't be overwhelmed by the many valuation techniques out there - knowing a few characteristics about a company will help you pick the best one.
  4. Bonds & Fixed Income

    Equity Valuation In Good Times And Bad

    Learn how to filter out the noise of the market place in order to find a solid way of determing a company's value.
  5. Markets

    Investment Valuation Ratios

    Learn about per share data, price/book value ratio, price/cash flow ratio, price/earnings ratio, price/sales ratio, dividend yield and the enterprise multiple.
  6. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  7. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  8. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  9. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  10. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  1. What average annual return does the railroads sector generate?

    The transportation sector has long been an area where investors turn for steady growth, and the rail industry, making up ... Read Full Answer >>
  2. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  3. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  4. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  5. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  6. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>

You May Also Like

Trading Center