It seems hard to believe that transportation stocks could be top market performers this year, given high energy costs and worries about recession. Yet railroads are up over 30% since January. Truckers are up 28%. According to Sam Stovall at Standard & Poor’s, that makes them the 4th and 5th best performing industry groups this year. Only coal, oil & gas, and steel have done better.

Industry experts explain that many investors are anticipating economic recovery, even if there is scant evidence of
one now. Analysts say they are also hoping energy costs will eventually pullback. Even if energy costs stay high, investors expect transportation companies will continue to have the power to raise prices.

So, if you do want to make an investment in the sector, where should it be?

Dan Orwerth at Edward Jones likes railroad stocks because that business has high barriers to entry. Plus, he says these firms have dramatically improved their operational efficiency through cost cutting and consolidation.

However, S&P’s Kevin Kirkeby likes the truckers better, based on valuations.

Do you think the rally in transportation stocks bodes well for the overall stock market, suggesting the economy is recovering? Or do you think that the group is getting winded and there are better investments elsewhere?