Transcripts

Transportation Stocks Are Pumped

SUSIE GHARIB: Despite those high energy prices, transportation stocks are rallying. So far this year the Dow transportation index is up about 18 percent. Erika Miller explains why many truckers, railroads and shippers are moving ahead at breakneck speed.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: It has been full steam ahead for railroads and many other transportation stocks this year. Surprisingly, the group has not been derailed by high energy prices or a weak U.S. economy. Since January 1st, railroad shares have gained 32 percent. Truckers are up 28 percent. Marine shippers have risen 13 percent and air freight has gained 2 percent. Standard & Poor's analyst Kevin Kirkeby says investors are buying many of these stocks on hopes the U.S. economy will soon be back on track.

KEVIN KIRKEBY, TRANSPORTATION ANALYST, STANDARD & POOR'S: As people began to anticipate a flow through of the Fed cuts, they were looking for early cyclical names, which the transports, particularly the trucks, tend to be.

MILLER: Transportation firms are also benefiting from strong global demand for U.S. products, especially commodities. That has allowed many firms to raise prices to cover higher fuel costs. At the same time, Edward Jones analyst Dan Ortwerth says many transportation companies have greatly improved their business models.

DAN ORTWERTH, TRANSPORTATION ANALYST, EDWARD JONES: They are working harder and harder to be more efficient, find smarter ways to do their businesses and be more profitable, so that they can keep more of those sales for the bottom line and so that they can weather difficult economic storms like this current one better than they used to in the past.

MILLER: The only group bucking the trend is major passenger airlines. It has fallen 8 percent this year and us expected to continue to face long- term turbulence. Analysts say there are still too many empty seats on planes and most carriers have difficulty raising ticket prices to cover higher fuel bills. Outside the airlines, analysts think those other transportation stocks will deliver strong returns this year, although they do see some risks beyond a protracted recession.

ORTWERTH: The single biggest long-term risk would be rising trade barriers, increasing protectionism. In our view one of the big drivers of this long term trend is the way the countries have cooperated with each other to bring those barriers down and facilitate more and more cross- border movement of goods and services.

MILLER: Historically, transportation companies have been viewed as a proxy for the health of the economy. So when they do well, it's often a good sign for the overall stock market. Erika Miller, NIGHTLY BUSINESS REPORT, New York.