There was speculation that the transportation stocks,
including the railroad companies, would be hurt by the government
Looks like the speculators have been incorrect thus far,
considering the iShares Dow Jones Transportation Average ETF
) is down less than two percent from an all-time high.
The ETF is made up of 21 stocks with the heaviest
concentration in the railroad sector. The top two holdings, Union
) and Kansas City Southern (NYSE:
), are railroad companies and they make up 21 percent of the
allocation. Delivery services accounts for 20 percent, trucking
another 18 percent, and airlines make up 15 percent of the
The exposure to the railroad stocks is what makes IYT an
attractive investment option. The sector is up 300 percent since
the 2009 bottom and is currently trading less than four percent
from a new all-time high. The recent pullback is a buying
opportunity based on the further potential upside for the
Today, the Association of American Railroads reported a 4.4
percent rise in U.S. rail traffic in September. More importantly
the traffic, without coal and grain rose by 4.9 percent, the best
increase since December 2012. Earlier this week, billionaire
investor Wilbur Ross made a comment on CNBC that oil transported
via rail is a boost to the railroad stocks.
As long as the economy continues to grow at a decent pace and
the government does not make the situation much worse in the
weeks ahead, it is fair to say that the railroad stocks should
continue to outperform. The question is when to buy and what to
One option is IYT due to its large exposure to the railroad
stocks. Another option could be the SPDR S&P Transportation
). However, only 15 percent of the ETF is invested in the
railroad stocks and only one holding in the top ten is in the
sector. Unfortunately with no pure play railroad ETF available,
the best option would be IYT or an individual railroad stock.
As far as when to buy into the railroad sector, the timing is
always difficult to decipher. However, long-term investors could
look to begin building a position in IYT on the recent pullback
from an all-time high.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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