Transportation on the Move - Zacks Industry Rank Analysis

Industry Rank Analysis 1-5-11

As the economy recovers -- and yes it does appear that we are recovering, although not fast enough -- more and more goods will be produced and sold. Those goods have to move. One of the indications that we are in a recovery is the fact that more goods have started to move, and that is also being reflected in the Zacks Rank.

The association of American Railroads recently reported that total freight car loadings were up 9.4% in December over year-ago levels, and even managed to climb slightly above December 2008 levels. Intermodal traffic (putting containers on trains, shipping them long distances and then transferring them to trucks for final local delivery) is up even more, rising 13.3% year over year. For all of 2010, total freight car loadings were up 7.4% over 2009 and Intermodal traffic was up 14.2%. Other transportation groups are also starting to look better on the Zacks rank as well.

The Zacks industry classifications are very fine, with 255 different industries tracked. It is not particularly noteworthy if a single small industry shows up doing well -- a single firm with good news can propel a one or two firm industry to the top (or bottom) of the charts. It is interesting, however, when you see a cluster of similar industries at the top of the list. The same holds true for the bottom of the list.

The Railroads currently are in a tie for 20th place among the 255 industries we track. While that is down two spots from last week, the average Zacks rank is 2.50, unchanged from last week. By number of firms, it is an average-sized industry, with eight companies.

The Air Freight Industry, which tends to handle higher value cargo, and certainly more time sensitive cargo, is doing slightly better in 19th place with a average score of 2,43, and improvement of 15 spots from last week when the average score was 2.57.

The other two big transportation groups -- the Airlines and the Truckers -- are decidedly more middle of the pack. The Airlines have always been a group where it is best to “rent rather than own” the stocks. They can make good short-term trades, but have historically been lousy long-term investments. It is currently in 104th place with an average score of 2.88. Both the spot on the list and the average rank are unchanged from last week.

The Truckers are squarely in the middle of the pack, in a tie for 123rd place (along with 38 other industries) with an average score of 3.00. However, last week the average score was 3.26, and the industry advanced 87 slots on that move.

Railroads are much more fuel efficient than are the Truckers, and intermodal traffic is competition for the long-haul truckers, so it is possible that recent increases in energy prices are part of the reason that the rails are showing up so much better than the truckers, but moving goods by air is even less fuel efficient than by truck, so clearly that is not the entire answer.

The first table below shows the Transportation stocks that hold the vaunted Zacks #1 Rank (Strong Buy). The second table shows the Zacks #2 Ranked (Buy) firms. Most of the firms are on the small side, particularly on the #1 list, but should be big enough that most of our readers can invest in them.

There are a few larger firms on the #2 list, ones that even the biggest institutional investor could buy. Valuations on most of these stocks are not exactly compelling, but there are a few that look interesting.

Number 1-Ranked Firms

Company	Ticker	Market Cap ($ mil)	P/E Using Curr FY Est	P/E Using Next FY Est	% Change Curr FY Est - 4 wk	% Change Next FY Est - 4 wk	Current Price
Tam Sa-Adr	TAM	$2,387	21.11	13.91	0.00%	0.00%	$23.78
Bristow Group	BRS	$1,678	13.51	12.11	0.00%	0.56%	$46.32
Railamerica Inc	RA	$708	20.1	15.42	0.00%	0.00%	$12.90
Patriot Transpt	PATR	$292	37.84	35.03	0.00%	0.00%	$94.59
Pinnacl Airlns	PNCL	$147	5.63	4.51	0.00%	24.11%	$7.90
Radiant Logist	RLGT	$35	17	11.9	0.00%	0.00%	$1.19
Us 1 Indus Inc	USOO	$16	5.75	N/A	0.00%	N/A	$1.15

Number 2-Ranked Firms

Company	Ticker	Market Cap ($ mil)	P/E Using Curr FY Est	P/E Using Next FY Est	% Change Curr FY Est - 4 wk	% Change Next FY Est - 4 wk	Current Price
Utd Parcel Srvc	UPS	$71,352	17.39	15.22	0.16%	0.12%	$72.15
Csx Corp	CSX	$25,366	14.36	12.46	0.22%	0.47%	$67.79
Air France-Adr	AFLYY	$5,812	39.11	8.19	0.00%	-0.42%	$19.36
Hunt (Jb) Trans	JBHT	$5,164	20.87	17.47	0.10%	0.00%	$41.89
Genesee & Wyo	GWR	$2,204	20.42	18.09	1.80%	1.06%	$53.16
Old Dominion Fl	ODFL	$1,831	18.82	14.89	0.80%	0.55%	$32.73
Werner Entrprs	WERN	$1,686	17.56	14.72	0.28%	1.17%	$23.22
Arkansas Best	ABFS	$678	40.84	17.53	6.15%	13.40%	$26.79
Air Transpt Svc	ATSG	$493	10.14	8.89	0.00%	0.00%	$7.73
Republic Airway	RJET	$343	8.2	4.88	-0.03%	0.00%	$7.39

In evaluating the Zacks Industry Ranks, you want to see two things: a good overall score (low, meaning more Zacks #1 and #2 Ranked stocks than #4 or #5 Ranked stocks) and some improvement the relative position from the prior week. It is also helpful to understand exactly what the Zacks Industry Rank is.

The Zacks Industry Rank is the un-weighted average of the individual Zacks ranks of the firms in that industry. It does not matter if the stock is the 800 lb gorilla that dominates the industry or some very small niche player in the industry -- they have the same influence on the industry rank.

Also, that means that the bigger the industry in terms of number of firms, the less influence any given company has on the industry rank. It also implies that small industries, with just two or three firms, should be the ones found at either the top or the bottom of the list. After all, if there are only two firms in the industry, it is relatively easy to get a Zacks rank of 2.00 (i.e. one with a Zacks Rank of #1 and the other with a #3). Right now, that industry rank would be tied for 6th place among the 255 industries tracked.

The same obviously goes for the bottom of the list as well. If there are 50 firms in the industry, and it ends up at one of the extremes, that means there has to be something pretty significant going on. Thus, I do not always focus on the very highest rated industries, but on the highest rated ones in which there are a large number of firms.

Click here for the Zacks Industry Rank List: http://www.zacks.com/zrank/zrank_inds.php
 
AIR FRANCE-ADR (AFLYY): Free Stock Analysis Report
 
CSX CORP (CSX): Free Stock Analysis Report
 
HUNT (JB) TRANS (JBHT): Free Stock Analysis Report
 
TAM SA-ADR (TAM): Free Stock Analysis Report
 
UTD PARCEL SRVC (UPS): Free Stock Analysis Report
 
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