Why consider the Dow transports when they point to a slowing economy? Because these 7 stocks are cheap

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By Philip van Doorn

There are always special circumstances, such as the airline industry’s recovery and ever-building demand for package delivery services

The Dow Jones Transportation Average has long been considered a good forward indicator of the direction of the U.S. economy. With early signs that an economic slowdown is coming, this might be an obvious portion of the stock market to avoid.

Then again, this group of 20 stocks includes four that are both expected to be profitable this year and grow earnings at a double-digit pace through 2024. It also includes some bargain stocks, especially if you believe the dark days of the pandemic are behind us.

The transportation warning

First, here’s a chart showing total returns (with dividend reinvested) for the Dow Jones Transportation Average , the Dow Jones Industrial Average and the S&P 500 this year through April 14:

The Dow Transports have been bringing up the rear. Following a 5% drop for the Dow Transports on April 1, a day when the Dow Jones Industrial Average and the S&P 500 were up, Mark Hulbert called the action a “bad omen.” He cited government data correlating poor performance among transportation stocks with economic slowdowns over succeeding months.

Along with this year’s weak showing for the Dow Transports, consumer and wholesale price increases were at 40-year highs in March, and the Federal Reserve is expected to accelerate its interest-rate increases and begin reducing its bond holdings soon to counter inflation. Rising rates have given home builders the jitters, and it remains to be seen if the Fed’s moves will cause a recession or lead to a “soft landing” for the economy.

The case for (some of the) Dow Transports

To screen the Dow Jones Transportation Average, we began with the entire list of 20 stocks and consensus 2022 estimates for earnings per share, among analysts polled by FactSet. A baseline of 2022 may be more useful than a 2021 starting point, because of the pandemic-induced turmoil for airlines and the supply squeezes that affected other industries.

Here are the 20 stocks in the Dow Jones Transportation Average, sorted by industry and then alphabetically, with projected compound annual growth rates (CAGR) for earnings per share through 2024:

Company                                      Ticker  Industry               Estimated EPS -- 2022  Estimated EPS -- 2023  Estimated EPS -- 2024  Two-year estimated EPS CAGR  Price/ 2024 EPS estimate 
C.H. Robinson Worldwide Inc.                  CHRW   Air Freight/ Couriers                 $6.35                 $5.78                 $5.95                        -3.2%                      17.4 
Expeditors International of Washington Inc.   EXPD   Air Freight/ Couriers                 $6.99                 $5.87                 $5.57                       -10.8%                      17.4 
FedEx Corp.                                   FDX    Air Freight/ Couriers                $21.72                $23.87                $25.84                         9.1%                       8.0 
United Parcel Service Inc. Class B            UPS    Air Freight/ Couriers                $12.78                $13.40                $13.76                         3.8%                      13.7 
Alaska Air Group Inc.                         ALK    Airlines                              $3.00                 $6.23                 $8.28                        66.3%                       6.9 
American Airlines Group Inc.                  AAL    Airlines                             -$3.44                 $1.57                 $3.63                          N/A                       5.2 
Delta Air Lines Inc.                          DAL    Airlines                              $2.53                 $5.83                 $7.25                        69.4%                       5.8 
JetBlue Airways Corp.                         JBLU   Airlines                             -$0.49                 $1.28                 $2.14                          N/A                       6.0 
Southwest Airlines Co.                        LUV    Airlines                              $1.13                 $3.11                 $4.28                        94.6%                      10.9 
United Airlines Holdings Inc.                 UAL    Airlines                             -$2.52                 $6.26                 $8.80                          N/A                       5.1 
Avis Budget Group Inc.                        CAR    Rental/ Leasing                      $22.55                $15.93                $14.82                       -18.9%                      17.9 
Ryder System Inc.                              R     Rental/ Leasing                      $11.60                $10.17                $11.75                         0.7%                       5.4 
Kirby Corp.                                   KEX    Marine Shipping                       $2.11                 $3.39                 $4.46                        45.3%                      14.9 
Matson Inc.                                   MATX   Marine Shipping                      $26.11                $11.21                 $6.31                       -50.8%                      13.9 
CSX Corp.                                            Railroads                             $1.79                 $1.96                 $2.15                         9.6%                      16.3 
Norfolk Southern Corp.                        NSC    Railroads                            $13.82                $15.27                $16.50                         9.3%                      15.9 
Union Pacific Corp.                           UNP    Railroads                            $11.65                $12.96                $13.93                         9.3%                      17.7 
J.B. Hunt Transport Services Inc.             JBHT   Trucking                              $8.84                 $9.75                $10.35                         8.2%                      16.6 
Landstar System Inc.                          LSTR   Trucking                             $11.08                 $9.49                 $9.54                        -7.2%                      15.2 
Old Dominion Freight Line Inc.                ODFL   Trucking                             $11.01                $12.06                $12.80                         7.8%                      20.7 
                                                                                                                                                                                    Source: FactSet 

Click on the tickers for more about each company.

Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

The estimates are for calendar years, because some companies have fiscal years that don’t match the calendar. For example, FedEx Corp.’s fiscal year ends on May 31.

Some notes about the data:

Any stock screen has its limitations and should only serve as a starting point for your own research.

Don’t miss:Inflation is raging, but these 16 companies have pricing power

-Philip van Doorn


(END) Dow Jones Newswires

04-23-22 0838ET

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