Transports may offer a profitable ride
By land and by air, transportation stocks have held their own.
Propelled by airline-consolidation talks, solid railroad fundamentals and a comeback in trucking, the Dow Jones transportation average is up around 4 percent this year, while the benchmark Standard & Poor’s 500 index is down 6 percent.
The index developed by Charles Dow in 1884 when railroads ruled the investment world, the Dow transports now consist of 20 stocks in airline, rail, trucking and freight industries.
"The transports tend to outperform in a declining-interest-rate environment," said John Barnes, analyst with BB&T Capital Markets in Richmond, Va. "People are starting to look through 2008 and say that, even if it is a bust, we can see the earnings recovery of these names when the economy does begin to heat up."
The logic is that interest rates and other attempts to stimulate the economy will take hold, triggering an upswing in volume that benefits all transports. Those who buy quality stocks now would be well-positioned when wheels of the economy start turning again, the thinking goes.
In the air, merger talks have boosted the airline stocks. The possibility of various European airlines taking stakes in U.S payday loans. carriers provides another lift to the volatile industry.
Vitality in airline stocks during record oil prices runs counter to their history.
"Airlines are being thrown back and forth, on one side by merger mania and on the other by oil prices," said Jim Corridore, equity analyst with Standard & Poor’s Corp. in New York. "Each day, depending on the news, those things are moving the stocks."
Demand for air travel has remained strong despite the weak economy, Corridore said. There’s been no downturn in bookings, and ticket pricing has increased a bit. Any consolidation would lift the stocks even more, he said.
That still doesn’t make airlines a pleasure flight for investors.
"Using the old adage ‘you don’t buy a good house in a bad neighborhood,’ the airline industry is a bad neighborhood," said Dan Ortwerth, research analyst with Edward Jones in suburban St. Louis. "Southwest Airlines is the ‘healthy thumb’ of the industry, but it is still really hard for it to make a good rate of return."
Although money can be made in the airline stocks with some speculative bets, he considers that gambling and definitely not what should be done with
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