Does Your Portfolio Have Transportation?

Transportation is the back-bone of the world economy. Without transportation, raw materials cannot be shipped, and the end result is disasterous for the economy. With the world's major economies coming out of a recession transportation is sure to benefit. The transportation sector is comprised of airlines, railways, package carriers(trucking, postage), even oil and gas pipelines.

Why should you be invested in the transportation sector?

In reality, transportation is the most important sector of them all, and also is a great indicator/leader of the equities markets. This nature is due to the fact that growth or contraction in the transportation sector is an early signal for economic growth or contraction. Companies will begin producing more before hiring; therefore,  transportation is an early indicator of mid to long-term economic growth because it benefits before companies increase their overhead labor costs.

It make sense that if more raw materials and finished product are being shipped, it means companies are producing more goods to satisfy business and consumer demand. This growth in the transportation sector is a good indication that the U.S. economy, or the rest of the globe is in good health and ready for a rebound.

It would make sense that when investing in a sector which has a great degree of costs, many sub-sectors, and is generally highly cyclical, you would to invest in the most EFFICIENT transportation system.

So what is the worlds most efficient transportation system?

It is U.S. intermodal, or integrated transportation. Here's why:

•Close to 40 million tons of goods are hauled around the United States every day.

•The total price of all the goods being shipped every day is $25-30 billion.

•Ground transportation is done on near 4,000,000 miles of highways and roads, 95,000 miles of railroads and 26,000 miles of waterways.

•U.S. shipping also includes thousands of miles of air routes and over 1.7 million miles of oil and gas pipelines.

•Accounts for close to $500 billion, or 4% of total GDP.

Intermodal shipping is highly efficient and more strategic. During the record high oil, diesel, and gasoline prices of 2008 the companies that survived and thrived the best were those that shifted their focus to intermodal shipping.

So what exactly is intermodal shipping?

Intermodal freight – a shipping method that combines rail, ship, and freight with very minimal handling of the freight during the switching of transportation modes, which reduces costs.

Intermodal freight shipping is down close to 20% in the past year. This drop is significantly due to the U.S. and world economic recessions.

So why should you consider investing in intermodal shipping companies now?

•Intermodal freight volumes have either been flat, or on the increase since June.

•Domestic container volumes have been rising slightly (up 1.3% during the third quarter).

A few other reasons why intermodal shipping will continue to do well includes the fact that the method is more cost-effective and environmentally friendly. For example, it uses 33% less fuel than shipping by truck alone. And most rail trains can move a ton of freight about 400 miles on a gallon of diesel, much more efficient than a truck.

So what companies stock is worth your attention to take advantage of intermodal shipping?

J.B. Hunt Transportation Services’(Nasdaq: JBHT) is a company that is in great position, taking advantage of the increased savings and higher margins intermodal shipping offers. CEO, Kirk Thompson, recently completed a new intermodal deal with Norfolk Southern Corp. (NYSE: NSC).

The multi-year contract will provide both companies a platform to accelerate the conversion of traditional truck traffic to intermodal transportation with service that is competitive with truckload moves. “The conversion of highway freight to the more efficient, cost-effective, safer and more environmentally friendly services that we jointly provide, will not only benefit shippers and the general public, but our shareholders alike,” said Hunt's CEO Kirk Thompson. The overall goal of the deal is to accelerate the switch from truck traffic to truck-rail intermodal transportation for freight shippers.

Both J.B. Hunt and Norfolk Southern are strong financially as well. J.B. Hunt's sales returns, ROA, ROE, net income, and liquidity are all much better than the transportation industry average. Norfolk Southern has recently had great management efficiency, and a solid trend for the last decade of rising profit margins, rising ROE, rising ROA, and decreasing debt.

The Hub Group  (Nasdaq: HUBG), is another shipping company that deserves your attention, and it is a freight company specializing in intermodal services and logistics. Dave Yeager, CEO of The Hub Group agrees with the intermodal mode, recently mentioning “We believe that business conditions are better and have become more stable. The future remains bright for intermodal due to the excellent service, a cost advantage over trucks, and the environmental benefits.”

Ultimately, if you want to harness the power of the transporation sector benefiting from economic recovery and long term growth, consider investing in J.B. Hunt, Norfolk Southern, or The Hub Group. They all surely stand to benefit as the economy continues to rebound.