Transportation ETFs Try To Regain Lost Momentum

The broader industrial sector has faced challenges this year, but the recent performance of the Industrial Select Sector SPDR XLI indicates some investors are turning positive on the group. XLI, the largest industrial exchange traded fund, is up 5 percent over the past week.

Transportation stocks reside in the industrial sector, and the performance of those names could be pivotal in determining the sector's near-term prospects. Diversified transportation ETFs such as the SPDR S&P Transportation ETF XTN are perking up, while airline stocks are struggling.

What Happened

XTN, an equal-weight fund, scuffled in the first quarter, but the fund has recently shown signs of life, gaining almost 2 percent over the past week. The ETF holds companies from the following industries: air freight and logistics, airlines, airport services, highways and rail tracks, marine, marine ports and services, railroads and trucking, according to the issuer.

Conversely, the U.S. Global Jets ETF JETS is sagging, indicating airline stocks are struggling as oil prices rise.

“Year-to-date through April 30, the S&P Airline Industry sub-index underperformed industrials stocks and the S&P 500,” CFRA Research equity analyst Stewart Glickman said in a Thursday note. “The airline index was down 11.1 percent versus a 4.8-percent decline for the S&P Industrials Index and a 1-percent decline for the S&P 500.”

Why It's Important

Not surprisingly, higher fuel prices are pinching airlines stocks and JETS, but Glickman said he sees some reasons to like the group.

“CFRA attributes weakness in airline stocks to higher jet fuel costs,” the analyst said. “However, we see many positives related to demand, pricing, cash flow and valuation that we think will drive increasing investor interest once the seasonally strong summer period starts.”

The analyst highlighted American Airlines Group Inc. AAL, Delta Airlines Inc. DAL, Southwest Airlines Co. LUV and Alaska Air Group Inc. ALK as among the industry's best-positioned names. The quartet combines for over 38 percent of JETS' roster.

What's Next

XTN allocates 23.14 percent of its weight to airline stocks, making them the ETF's third-largest industry exposure. CFRA has Overweight ratings on JETS and XTN.

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