A Bird's-Eye View Of Trucking's Revival

The media made it clear that trucking activity increased from September to October. In fact, some journalists went as far as to say this second improvement in the American Trucking Association's Index was a "sign of a strengthening economy". And maybe it is, but let's not forget it was the very same media machine said "trucking activity will be slowing with the economy through the end of the year," after a only a couple of months' worth of declining tonnage in August and June of this year.

This yo-yo interpretation of the latest data set causes confusion for investors. Even worse, none of the suppositions do investors any favors, as the reports fail to highlight the profitability trends of trucking stocks like J.B. Hunt (NASDAQ:JBHT) and Con-Way (NYSE:CNW).

Taking a step back and looking at the bigger picture - over two months of information - we may find the answer to two key questions for traders:

1. Is trucking activity actually picking up in the grand scheme of things?

2. Are trucking companies growing profits again because of increased activity?

IN PICTURES: 20 Tools For Building Up Your Portfolio

What We Really Want to Know
The American Trucking Association's monthly For-Hire Tonnage Index is an ideal gauge of demand for trucking services. The numbers going all the way back to January of 2009 are below, and side-by-side with the average EPS from a cross-section of the trucking industry. In this case, we're looking at Landstar Systems (NASDAQ:LSTR), Old Dominion Freight Line (NASDAQ:ODFL), Knight Transportation (NYSE:KNX), Werner Enterprises (NASDAQ:WERN), J.B. Hunt, and Con-Way as a proxy for the trucking industry's stocks. Just to keep the analysis as fair as possible, we've even price-weighted the earnings results.

	ATA Index	Avg EPS
Jan-09	104.7
Feb-09	106.5
Mar-09	101.4	$0.07
Apr-09	99.2
May-09	102.3
Jun-09	99.8	$0.32
Jul-09	101.9
Aug-09	104.1
Sep-09	103.9	$0.30
Oct-09	103.5
YTD Total	1027.3	$0.68
Nov-09	106.2
Dec-09	108.4	$0.22
Jan-10	109.1
Feb-10	108.5
Mar-10	109.2	$0.19
Apr-10	110.2
May-10	109.6
Jun-10	108.5	$0.36
Jul-10	110.0
Aug-10	106.9
Sep-10	108.7	$0.37
Oct-10	109.7
YTD Total	1090.9	$0.92

We can draw two important conclusions from a longer-term look at the data. One, trucking activity is indeed increasing on a sum-total basis, and two, trucking companies are capitalizing on the opportunity.

What Does It Mean?
It may be obvious to some investors, the improved earnings make sense on their own; a better economy leads to better profits. As such, these stocks make for decent long-term holdings.

A few critics have made the valid point, however, that the recession forced many trucking companies out of business altogether, simply leaving behind more customers and revenue for each of the survivors. It doesn't necessarily mean the total demand for trucking has increased, though. The American Trucking Association's Tonnage Index - which isn't skewed by survivorship bias - addresses that concern by confirming that the improved profits are walking hand-in-hand with the industry's organic revival.

The Bottom Line
At the very least, we can be certain the industry is pulling out of its slump like most others are. In the meantime, investors may be better served by ignoring any short-term panic just because trucking activity tapers off for a couple of months. It's a volatile indicator, but it hasn't put the brakes on earnings yet. (To give your portfolio the punch it needs, read Singling Out Sector ETFs.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!