In the five years following the end of the 2001 recession a
secret index soared 240 percent.
Today, this index indicates that some huge gains in a certain
sector of stocks are likely. The gains in small caps could be
especially big as they typically outperform large cap stocks.
Before I tell you exactly what this secret index is however, I'd
like to show you why I believe this industry is well poised for
growth, and why stocks in this sector performed so well over the
past 10 years.
The industry I'm talking about is trucking, and while it may not
seem that exciting on the surface, it is well worth considering the
reasons why the trucking industry, and trucking stocks, is poised
for huge gains.
***Trucking is a key barometer of the U.S. economy. As an
economy grows more goods are produced. Those goods need to get from
A to B somehow, and the three viable options are rail, air, and
Air is expensive, especially for heavy goods. Rail is great, and
cheap, but doesn't cover smaller networks. Like air, rail transport
relies heavily on trucking to get from major distribution hubs to
eventual final destinations.
In the supply chain industry, the use of various modes of transport
is referred to as 'intermodal freight transport'. No surprise,
intermodal requires close integration of the various transportation
methods to ensure there is not a lot of downtime.
Trucking is the most nimble of the available options, and is
critical to making the rest of the supply chain efficient. We're
not in a rapidly growing economy, so it makes sense to invest in
efficiency solutions since they have the potential to keep costs
low - and thus they face rising demand.
*** According to the American Trucking Association (
), more than two-thirds of the tonnage moved by all domestic
freight transportation goes by truck. That's a healthy share of the
market to be sure.
Consider that right now,
United Parcel Service (
trucks are increasingly moving goods around the country as the
holiday shopping season picks up. Business activity is also picking
up, and this is the long-term catalyst for trucking stocks.
***So what is my secret index? It is the
Dow Jones U.S. Trucking Index (DJUSTK),
and it is up 25 percent in the 17 months since this recession ended
in June 2009.
If it follows the pattern following the 2001 recession, trucking
stocks have a nice run ahead of them over the next three-plus
***One of top performers in the Dow Jones Trucking Index this
year has been
Covenant Transportation Group (Nasdaq: CVTI).
Admittedly it is a different type of company, with a faith
based mission, but I don't think investors need to take a leap of
faith to buy shares.
There are five analysts covering the stock, and four rate it a
buy with one rating it a hold. The consensus price target on shares
is $12, a 30 percent premium to yesterday's closing price.
The investment community is just starting to pick up on
Covenant, and analysts expect earnings to more than double to $0.66
per share in 2011. The stock has outperformed the Dow Jones
Trucking Index so far this year, rising 85 percent versus the
index's climb of 17 percent.
The Chattanooga, Tennessee based Covenant was hit hard by the
economic downturn, but appears to have worked through a painful
cost-cutting and fleet upgrade. Its top customers include UPS and
Wal-Mart Stores (
which rely on Covenant whenever it's cost-effective. As shipping
needs increase, Covenant will pick up more business to keep its
3,100 tractors and 8,000 trailers busy. After all, many companies
are still reluctant to over expand their own fleets so reliance on
outside companies like Covenant provides a cost effective
Covenant has put up two straight profitable quarters -- the
first time that's happened since 2005. At just below $10 the stock
is trading at levels last seen nearly four years ago. With a
forward P/E of 13 the stock appears undervalued.
***On the downside, Covenant's management did warn that late in
the third quarter they didn't see an expected pre-holiday pickup in
freight. Investors will want to monitor the stock through the
holiday season to see if this improves. But despite management's
comments, the stock has rallied since earnings were reported on
so investors seem to think the stock is still a good buy.
I like that Covenant is trading at a bargain price of around $9,
is outperforming many of its peers, and is in a strengthening
sector. As always, do your own stock research before buying shares,
and use my research as a jumping off point.
: Another sector of the market that has been soaring lately is
precious metals, and in particular silver. I recently put together
Special Report: Sierra Madre Silver Profits
that features three silver mining companies, all in different
stages of development. With silver rising above $27 an ounce, these
stocks are great buys right now. Get your copy of this
special opportunity silver report here.