Riding on U.S. economic recovery and increasing investor
sentiment, transportation stocks are leading the way higher as of
late. Solid retail, manufacturing, and labor data act as major
tailwinds to the broad growth, indicating strong demand for
movement of goods across many economic sectors.
The optimism in the sector got a lift from the
earnings beat last month. This bullishness continues as we head
toward the end of the year despite a bunch of major companies
reporting mixed results last week.
This is especially true as the
iShares Dow Jones Transportation Average Fund (
has been on a roll, beating out the
broad market fund (
broad industrial sector fund (
by wide margins. The ETF gained nearly 3% over the past five days
and over 30% in the year-to-date time frame (read:
Transport ETFs: Can the Surge Continue?
Given this, it might be worth it to shed some light on this ETF and
its holdings for those who seek to enter the space. Below, we
highlight some of the key details regarding IYT, and how recent
earnings have led to the run-up in fund's price.
IYT in Focus
The ETF tracks the Dow Jones Transportation Average Index, giving
investors exposure to its small basket of 21 securities. The fund
has accumulated $578.5 million in AUM while seeing good trading
volumes. It charges 45 bps in fees and expenses (see:
all the Industrials ETFs here
The product puts more than 67% of assets in the top 10 firms,
suggesting heavy concentration and dominance of the top 10 holdings
with respect to returns. From a sector perspective, the fund is
tilted toward railroads at 29.34%, while delivery service sector
makes up for nearly 20.30% share.
IYT has a Zacks ETF Rank of 1 or 'Strong Buy' with a 'Medium' risk
outlook, suggesting that the ETF will outperform over the next one
Top Ranked Transportation ETF in Focus
Transportation Earnings in Focus
The impressive run in IYT share price was brought up by record
profits for Q3 at one of the largest railroads,
Union Pacific (
amid weak coal shipments and disruptions caused by floods in
Colorado. Earnings per share rose 13% year over year to $2.48 and
were a penny ahead of the Zacks Consensus Estimate thanks to
pricing and productivity gains.
Though revenues increased 4.3%, it marginally missed the Zacks
Consensus Estimate. UNP also achieved its best-ever operating ratio
(percentage of total revenue spent on running the business) of
64.8% in the quarter. UNP occupies the top position in the fund's
basket with 11.95% share (read:
Guide to Transportation ETF Investing
Apart from UNP, the ETF got a boost from another major railroad,
Kansas City Southern (
, which gained over 4% in the past two days. IYT allocates 10.18%
of total assets in UNP, which takes the third spot in the basket.
Although the company's earnings of $1.10 per share missed our
estimate by a penny, earnings rose 16% from the year-ago quarter on
improved shipments from cross-border business. Revenues were up
7.7% year over year and inched past our estimate by nearly $5
Further, FedEx also contributed to IYT upside. The share price of
the courier company has risen nearly 6% in the past five trading
sessions. The firm occupies the second position in the basket and
represents about 8.88% of IYT (read:
Transport ETFs in Focus on FedEx Earnings Beat
Investors should note that the transportation sector is often
considered a barometer of broad economic health as it grows when
U.S. economic activity picks up. Given this, along with many other
major companies yet to be reported, the transport sector and the
ETF are poised to rise in the coming months, and could be worth a
closer look by investors.
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FEDEX CORP (FDX): Free Stock Analysis Report
ISHARS-TRAN AVG (IYT): ETF Research Reports
KANSAS CITY SOU (KSU): Free Stock Analysis
UNION PAC CORP (UNP): Free Stock Analysis
SPDR-INDU SELS (XLI): ETF Research Reports
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