Can Transport Stocks Deliver On Dow Theory? (UAL, LUV, CSX, NSC, JBHT, LSTR, NAT, FRO)

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The Dow Jones Transportation Average has risen just 7.7% in the past five years, and barely 3% in the past 12 months. Not exciting, that’s for sure, except for the ride to get here.

Fortunately there are no shipping stocks included in the average or it could have been even more thrilling. The Baltic Dry Index has fallen by -44% in the past 12 months as new ships have flooded the market and cargoes have dwindled due to a slower economy.

We’ve looked at eight companies in the transportation business to see if there is any value to be gained here: airlines United Continental Holdings Inc. (NYSE: UAL) and Southwest Airlines Co. (NYSE: LUV); railroads CSX Corp. (NYSE: CSX), Norfolk Southern Corp. (NYSE: NSC); truckers JB Hunt Transport Services Inc. (NASDAQ: JBHT) and Landstar System Inc. (NASDAQ: LSTR); and shipping companies North American Tankers Ltd. (NYSE: NAT) and Frontline Ltd. (NYSE: FRO).

Over the past 12 months, only truckers JB Hunt and Landstar and rail carrier Norfolk Southern have been able to post share price gains. Hunt is up more than 28%, Landstar is up 27%, and Norfolk Southern is up about 7%.

United Continental Holdings Inc. (NYSE: UAL) has a consensus target price is $33.58 and the stock is trading today at around $20.80, for a potential gain of 61%. Airlines are generally the hardest and most immediately hit by increases in fuel costs. Despite that, United’s share price has gained slightly more than 10% since the beginning of the year.

Southwest Airlines Co. (NYSE: LUV) has a consensus target price of $12.46 and a current price of around $9.07, for a potential upside of 37%. Southwest’s share price is up more than 6% since the beginning of the year, though for the past 12 months it’s down more than -22%.

US rail traffic is down 0.3% year-over-year for the first two months of 2012. Container traffic is up 3.2% while truck trailer traffic is down -7.7%. In the last week of February, traffic was down -5%. None of this appears to bode well for either the railroads or the truckers.

CSX Corp. (NYSE: CSX) has a consensus target price of $27.20 and shares are trading today around $21.18, for a potential gain of 28%. CSX shares lost about -12.5% over the past 12 months but are up slightly since January.

Norfolk Southern Corp. (NYSE: NSC) has a consensus target price of $85.68 and a current price of $69.27, for a potential gain of 24%. The target price is virtually unchanged since December, but the share price has fallen by a $5/share. Norfolk Southern, one of our three gainers in the past 12 months, has lost more than -5% of its share price since January.

JB Hunt Transport Services Inc. (NASDAQ: JBHT) has a consensus target price of $54.48, and a current price of around $52.32, for a potential gain of just 4%. In December the target price was around $48, so Hunt’s target has been moving in the right direction and the stock price has kept pace. As fuel costs rise, though, Hunt could face some hard choices.

Landstar System Inc. (NASDAQ: LSTR) has a consensus target price of $56.94 and a current price of $55.41, for a potential upside of just 2.8%. The company’s target price in December was around $52, so, like Hunt, the target keeps moving up as does Landstar’s performance. Fuel costs could start trimming profits here too, though.

The shipping business has too many ships sailing around at unprofitable day rates. Until that situation resolves itself — not likely until 2013 — anything that resembles value in the shipping business is likely a mirage.

North American Tankers Ltd. (NYSE: NAT) has a consensus target price of $13.80 and current price of $14.22, indicating that the stock is fully valued.

Frontline Ltd. (NYSE: FRO) has a consensus target price of $5.83 and a current price of $5.50, for a potential gain of less than 1%. Frontline’s target price is essentially identical with it’s December target, when the stock was trading at less than $3/share.

Of the stocks reviewed here, JB Hunt has performed best for the past 12 months and is the leading performer since the beginning of this year, if you don’t count the shipping stocks. Both shipping stocks have larger gains, but they were down so far that any direction looks like up. Chasing the gains on either Nordic American or Frontline is almost purely speculative. JB Hunt, and to a lesser degree, Landstar, are the best bets here.

Paul Ausick

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