Industry Rank Analysis 2-1-11
According to the venerable Dow theory, a new high in the Dow Industrials needs to be confirmed by a new high in the Dow Transports for the uptrend to be sustainable. There is a good economic logic to that. If the economy is getting healthier, then it is producing more stuff, and that stuff has to be moved. While we are not at all-time new highs on the Dow 30, we are knocking on the door of 13,000 and setting new post-Great Recession highs.
The transports have been notable laggards of late. This is a worrisome development, and unfortunately, the Zacks rank is pointing to still further weakness in at least three major parts of the transports.
The Zacks industry classifications are very fine, with 256 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 when you see a cluster of similar industries at the top of the list. The same holds true for the bottom of the list. It is even more interesting when you have three large industries, all from the same area, that are clustered together near the top or the bottom.
The definition of size that matters here is not the total sales or market capitalization but the number of companies in the “industry." The three transport industries that are looking exceptionally weak are all much larger than average -- the Truckers with 23 firms, the Airlines with 24 firms and the Shipping industry with 49 firms. The law of large numbers make it very unusual for such large industries to appear near either the top or the bottom of the list.
The worst of the bunch were the Truckers, coming in 248th place, a deterioration of three spots with an average score of 3.65, up from 3.61 last week (remember that high is bad when it comes to the Zacks rank). Right on the heels of the Truckers are the Airlines, in 246th place, a deterioration of three spots with an unchanged average score of 3.54. Finally we have the Shipping companies, which is a huge industry with 49 firms. It is in 234th spot, a one spot deterioration, even though the average score nudged up to 3.43 from 3.47.
For the Truckers and Airlines, higher fuel prices seem to be at least part fo the problem, but that should not be a huge factor for the shippers. Yes they use a lot of fuel, but on a ton mile moved per gallon basis, shipping is by far the most fuel efficient method of transport, although it obviously has problems in inland transportation. For inland transportation, rail is by far the most fuel efficient, and incidentally actually looks fairly strong on the Zacks rank, in 45th place with an average score of 2.63.
For the most part, these are volatile stocks that are best treated as trades rather than as long term investments. It is better to “rent these stocks” than to own these stocks. With such low Zacks ranks, right now you just want to avoid them altogether, or if you are adventuresome, short them. If you need a transportation stock in your portfolio, your best bet would be to ride the rails.
The first table transport stocks that hold the awful Zacks #5 Rank (Strong Sell). The second table shows the #4-ranked (Sell) firms. Most of the stocks are small caps, and even micro caps. Those firms are probably very difficult to short, and probably do not have listed options, so the best thing you can do is simply stay away. If you happen to own them, get out while you can.
There are a few though that are solidly in the mid-cap range which should be shortable, or for which you should be able to buy puts. Valuations based especially on next year's (2012 for the most part) earnings do look very attractive for many of these stocks. On the other hand, the estimate are being cut, and often being cut hard. Falling EPS estimates could raise those P/Es in a hurry. That would be a classic example of a value trap.
Number 5 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 |
Ryanair Hldgs | RYAAY | $8,977 | 17.35 | 12.62 | -1.51% | -0.21% | $30.25 |
Frontline Ltd | FRO | $2,112 | 16.08 | 13.83 | -17.06% | -22.28% | $27.12 |
Con-Way Inc | CNW | $1,841 | 21.68 | 14.16 | -11.80% | -8.32% | $33.62 |
Jetblue Airways | JBLU | $1,728 | 12.55 | 13.92 | -16.53% | -30.96% | $5.88 |
Dryships Inc | DRYS | $1,618 | 4.27 | 4.33 | -3.40% | -14.50% | $4.85 |
Marten Trans | MRTN | $463 | 17.42 | 13.93 | -4.72% | 1.00% | $21.11 |
Phi Inc-Nvt | PHIIK | $314 | 22.79 | 16.41 | 0.00% | 0.00% | $20.51 |
Republic Airway | RJET | $291 | 7.59 | 4.6 | -8.68% | -9.90% | $6.28 |
Ultrapetrol Ltd | ULTR | $163 | 15.54 | 5.79 | 0.00% | 0.00% | $5.44 |
Baltic Trad Ltd | BALT | $143 | 7.77 | 7.9 | -17.17% | -20.30% | $8.53 |
Covenant Trans | CVTI | $129 | 15.2 | 9.42 | -11.52% | -7.60% | $8.88 |
Usa Truck Inc | USAK | $127 | 35.89 | 12.18 | -11.58% | -14.41% | $12.06 |
Pam Transport | PTSI | $106 | 38.69 | 15.48 | -22.67% | N/A | $11.22 |
Number 4 Ranked Firms
Company | Ticker | Market Cap ($ 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 |
Delta Air Lines | DAL | $9,333 | 5.7 | 5.31 | -7.88% | -3.86% | $11.83 |
Southwest Air | LUV | $8,913 | 13.71 | 12.36 | -5.80% | -6.49% | $11.93 |
Air France-Adr | AFLYY | $5,503 | 45.26 | 7.75 | -18.18% | -0.42% | $18.33 |
Amr Corp | AMR | $2,400 | N/A | 9.17 | -127.32% | -17.37% | $7.20 |
Us Airways Grp | LCC | $1,641 | 4.14 | 3.69 | -7.86% | -11.18% | $10.16 |
Knight Transn | KNX | $1,594 | 21.11 | 17.43 | -3.73% | -2.36% | $19.05 |
Heartland Exp | HTLD | $1,446 | 20.26 | 17.53 | -1.67% | -0.21% | $15.94 |
Nordic American | NAT | $1,166 | 24.15 | 17.13 | -5.79% | 6.27% | $24.87 |
Overseas Shipho | OSG | $1,047 | N/A | 48.45 | -213.05% | 84.07% | $34.40 |
Airtran Hldgs | AAI | $999 | 15.68 | 14.45 | -5.53% | -8.93% | $7.37 |
Diana Shipping | DSX | $961 | 7.83 | 8.89 | -3.81% | -14.37% | $11.72 |
Seaspan Corp | SSW | $957 | 9.08 | 7.93 | -0.24% | 3.22% | $14.00 |
Allegiant Travl | ALGT | $898 | 12.29 | 9.79 | -5.16% | -4.87% | $47.24 |
Skywest Inc | SKYW | $833 | 10.5 | 7.4 | -0.14% | -0.24% | $15.14 |
Forward Air Crp | FWRD | $803 | 20.71 | 17.67 | 0.00% | 4.44% | $27.69 |
Safe Bulkers | SB | $555 | 5.25 | 4.79 | -0.31% | 5.18% | $8.43 |
Teekay Tankers | TNK | $465 | 16.51 | 15.6 | -6.63% | 16.34% | $11.89 |
Tsakos Egy Navg | TNP | $429 | 32.14 | 7.06 | -51.80% | -16.67% | $9.36 |
Genco Shpg&Trdg | GNK | $410 | 4.2 | 7.53 | -7.91% | -13.95% | $11.53 |
Excel Maritime | EXM | $379 | 12.77 | 32.58 | -39.43% | -74.10% | $4.67 |
Celadon Group | CGI | $335 | 23.75 | 15.97 | -12.76% | -3.49% | $15.01 |
Genl Maritime | GMR | $286 | N/A | 10.81 | -209.95% | -21.64% | $3.22 |
Eagle Bulk Shpg | EGLE | $256 | 23.49 | 10.22 | -53.28% | -21.52% | $4.11 |
Crude Carriers | CRU | $254 | 13.18 | 7.13 | -6.06% | 25.00% | $15.87 |
Scorpio Tankers | STNG | $245 | 47.33 | 34.28 | -76.92% | -71.85% | $9.94 |
Vitran Corp Inc | VTNC | $224 | 15.75 | 10.62 | -1.87% | 6.28% | $13.77 |
Yrc Worldwd Inc | YRCW | $197 | N/A | N/A | -11.16% | -117.80% | $4.15 |
Paragon Shpgn-A | PRGN | $157 | 9.52 | 6.82 | -1.53% | -15.09% | $3.07 |
Euroseas Ltd | ESEA | $111 | 19.29 | N/A | -8.94% | N/A | $3.60 |
K-Sea Transport | KSP | $98 | N/A | N/A | -1.26% | -0.32% | $5.10 |
Seanergy Maritm | SHIP | $55 | 6.74 | N/A | 0.00% | N/A | $0.91 |
Freeseas Inc | FREE | $23 | N/A | 9.43 | -300.00% | -6.33% | $3.49 |
In evaluating the Zacks industry ranks, you want to see two things: both a good overall score (low, meaning more Zacks #1 and #2 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. It 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 #1 Rank and the other with a #3). Right now that industry rank would be tied for 8th 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.
Dirk Van Dijk, Chief Equity Strategist.
AIR FRANCE-ADR (AFLYY): Free Stock Analysis Report
AMR CORP (AMR): Free Stock Analysis Report
DELTA AIR LINES (DAL): Free Stock Analysis Report
SOUTHWEST AIR (LUV): Free Stock Analysis Report
RYANAIR HLDGS (RYAAY): Free Stock Analysis Report
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