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Tickers in this Article: BNI, BRK.A, BRK.B, CSX, JBHT, LSTR
The Dow Jones Transportation Average (DJTA) was created in July 1884, making it the oldest index still in use today. It's even older than its more-popular cousin, the Dow Jones Industrial Average (DJIA). Major stock indexes have a tendency to follow each other, and the transports and industrials are no exception. Unfortunately for investors, this means that in the past year, the Dow 30 has shed 45% of its value while the DJTA, consisting of 20 companies, has fallen more than 50%.

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Falling Transportation
Transportation stocks are usually good indicators of the economy's overall health. Rail companies, trucking companies and airlines all provide a good measure for how the economy is performing; according to these stocks, the economic prognosis is bleak.

Right now, the transportation average is like a hospital full of dying patients. Let's take a look at a few of the most ill:

Company 52-Week High March 9 Close
Burlington Northern Santa Fe Corp. (NYSE:BNI) $114.58 $51.20
CSX Corp. (NYSE:CSX) $70.70 $20.90
J.B. Hunt Transport Services (Nasdaq:JBHT) $40.25 $18.59
Landstar System (Nasdaq:LSTR) $59.21 $27.46
As of market close March 9, 2009


Off Track - and Hopefully Out of Your Portfolio
Burlington Northern, the second largest railway company in the U.S., has started 2009 on a sour note, down about 30% on the year. The company is a favorite of Warren Buffett's and his Berkshire Hathaway (NYSE:BRK.A, BRK.B) is Burlington Northern's fourth-largest shareholder. Buffett's bad 2008 has been well documented and Burlington Northern is no exception. To make matters worse, Berkshire has been a prodigious writer of put options on Burlington shares, a strategy that only works when the shares rise.

Similar to other Buffett holdings, Burlington Northern pays a nice dividend of $1.60 annually, good for a 2.7% yield. The company trades for less than two times book value and at about eight times its forward P/E. (For related reading, see Investment Valuation Ratios: Price/Earnings Ratio.)

That's the good news. The bad news is that the health of rail companies like Burlington Northern is inextricably linked to the health of other industries. Look at the dramatic decline in auto shipments for a reason why shares of Burlington Northern have suffered in the past year. As of January, railcar shipments of automobiles were down 65% year over year.

CSX is a different company with the same story. This year, shares are down roughly the same percentage as rival Burlington Northern. CSX shares touched a 52-week low of $20.70 on Monday March 9. In an effort to bolster its bottom line, the Florida-based company has joined its railway brethren in laying off workers and raising shipping rates; neither action is an endorsement of the industry's near-term prospects. In addition, CSX was recently forced to lower shipping prices on chemicals, and was forced to pay fines to DuPont.

While CSX trades much like its peers at a P/E of 6.2, and at a discount to the broader market multiple of 9.4, it's hard to recommend CSX shares when weekly shipping volumes across the company's key markets, including a recent 13% decline in the west, continue to plunge.

Don't Back Up the Truck on Trucking Stocks
First it was high fuel costs, now it's the economy crippling the shares of trucking companies. One small light at the end of the tunnel may be J.B. Hunt's recent 10% dividend hike. The company recently announced a drop in fourth-quarter profits and it doesn't appear 2009 will treat J.B. Hunt and its rivals any better.

J.B. Hunt shares have outperformed the S&P 500 by 15% in the past year, which is to say the shares fell 35% compared to 48% for the index. The company trades at a smart 4.75 times book value and 11 times forward earnings. A decline in diesel fuel prices certainly benefits J.B. Hunt and its rivals, but a turnaround in the economy is necessary for a turnaround in these shares.

JBH's rival, Landstar, tells the same story. The lower demand of trucking services is overriding the benefit of lower fuel prices, and Landstar's shares have suffered in the same vein as J.B. Hunt's. Landstar's shares appear inexpensive, especially with a price-to-sales ratio of 0.6, meaning investors get $1 worth of sales for every 60 cents invested. (See Use The Price-To-Sales Ratios To Value Stocks.)

Earlier this week, Landstar revealed that sales had plunged in January and February, which led to a reduction in earnings estimates and price target by a Credit Suisse analyst. Even though Landstar's shares are down more than 50% in the past year, it looks like they may tumble further.

Bottom Line: Wait for the Economy to Rebound
For the market to rally, a rally in transports is necessary, and that upward move may be a long way off. Only investors with the longest time horizons should get involved with transportation stocks right now. With a little patience, these shares will probably be available at even lower prices than where they currently trade.

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