Though the Dow Jones Transportation Average has been taking a breather after racing higher in recent months, some transportation-equipment makers are carving out bullish charts.
The iShares Transportation Average Index Fund (IYT) is chugging slowly along beneath resistance at $96.22. The fund's largest holding, accounting for nearly 12% of the index, is Union Pacific (UNP). Not surprisingly, the stock is etching a chart pattern that essentially mirrors that of the index. UNP has been a solid, though not outstanding performer, relative to the general market. So far this year, it's up about 6%. That lags the S&P 500, which has advanced nearly 12% that time.
The transports, meanwhile, are up about 6.3%.
A top performer within the index is UPS (UPS), which has bolted nearly 3% so far this week, in heavier-than-normal volume. News that the company was acquiring Netherlands-based TNT Express for $6.85 billion, expanding UPS's European business, sent the stock gapping higher Monday.
Because I'm primarily seeking growth opportunities, I tend to watch the top-performing indexed or top-performing exchange-traded funds to see where I can unearth other sector leadership. In the case of the transports, some smaller companies from related industries are showing winning ways.
Despite having a company name that conjures Elmer Fudd, Wabtec (WAB) is a stock that caught my attention. Also known by its formal name, Westinghouse Air Brake Technologies Corp., this maker of rail cars has been rallying for a couple of months; it's up 2.9% in March following a leap of 8.6% in February. Like many companies, Wabtec suffered an earnings decline in 2009, but profitability has increased in the two years since. Wall Street expects double-digit income growth this year and next. Revenue growth has been strong in the past couple of years; if those trends continue, it could be a driver for further price gains.
The stock is trading near all-time highs at the $77 level. It cleared an eight-month price consolidation in mid-January. A 10-week pullback now could offer a new entry point.
Another less-well-known transport stock with a promising chart is logistics service provider Roadrunner Transportation Services (RRTS). This is a recent initial public offering, but one of those unheralded deals since it was neither a social-media company nor a large offering.
The stock went public in May 2010 at $14. It's had volatile trade since then, with erratic weekly price swings. Nonetheless, the stock has clawed its way to a high of $18.59, reached last week. The stock has had trouble gaining further traction after gapping up Feb. 9 and again on Feb. 15. The first gap was due to better-than-expected fourth-quarter revenue.
This is a small company, with a market cap of $549 million. It's thinly traded -- a factor in the big weekly price swings -- with just 147,000 shares a day changing hands on average. Of course, that translates to sparse institutional ownership, although the number of mutual fund and hedge fund owners has been increasing.
Clearly, Wabtec and Roadrunner represent two very different ways of getting potential growth exposure in the transportation sector. Wabtec, with a market cap of around $3.7 billion, is still somewhat thinly traded, moving 288,000 shares per day on average; however, it has more institutional ownership than Roadrunner, meaning it could potentially be less prone to sudden downshifts.
For traders and investors seeking the potential fast gains of a smaller stock, Roadrunner could offer a buy point after it clears its current area of sideways trade. Because it's shown a history of volatile trade, and because it's so thin, buyers need to use tight stops or trading rules to cut losses quickly, if necessary.