Transportation was one of the best performing sectors of 2013
and this trend continues in 2014. This is largely thanks to solid
U.S. economic recovery and improving investor sentiment.
ISHARS-TRAN AVG (IYT): ETF Research Reports
UTD PARCEL SRVC (UPS): Free Stock Analysis
SPDR-SP TRANSPT (XTN): ETF Research Reports
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Generally, transportation companies get busier when economic
activity picks up, which in turn results in strong demand for
movement of goods across many economic sectors.
However, the space was hit by severe cold weather that restricted
the movement of people and goods by road, air or ship throughout
the country. This pushed down the stocks for many companies
Beat the Cold Weather with These Hot Sector
Further, the recent profit warning and sluggish outlook from the
bellwether United Parcel Service (
) has dampened investor mood making them cautious on the stock
and the broad sector.
UPS Warns of 4Q Earnings
The world's largest package delivery company said that the
shorter holiday season, Christmas delivery delays as well as
unusually harsh winter took a toll on the earnings for the fourth
quarter and full-year 2013. The company now projects earnings for
Q4 to come in at $1.25 per share, well below the Zacks Consensus
Estimate of $1.42.
United Parcel also slashed its full-year guidance to $4.57 per
share, significantly below current street estimates that peg the
firm's 2013 earnings at 4.65-$4.85 a share and the Zacks
Consensus Estimate of $4.75 (read:
Buy these ETFs to Profit from the Earnings
Though UPS had employed 85,000 temporary workers, it could not
deliver many packages in time for Christmas.
Weak 2014 Guidance
Further, the company expects 2014 earnings to grow 10-15% in 2014
to around $5.02-$5.26 per share thanks to the online shopping
trend. But this is below the Zacks Consensus Estimate of $5.40
Though the industrial sector is booming, the news has spread
bearishness not only on this package delivery giant but also on
the space (see:
all the Industrials ETFs here
As expected, UPS shares fell sharply as much as 4% in early
trading on Friday after this bearish announcement before
recovering. The stock was down nearly 0.6% at the close. The
volume levels were also notable with three times more shares
trading hands than the normal trading days.
The sluggish news were also negatively impacted the other parcel
delivery giant FedEx (
) that fell about 1% on the day.
Surprisingly, this wasn't that bad for the transportation sector
ETFs world. Currently, there are two ways to play the space with
iShares Dow Jones Transportation Average Fund (
SPDR S&P Transportation ETF (
. Both of these were down nearly 0.8% in the early trading on
Friday but recovered slightly to down 0.4% at the close.
This is because the two ETFs were also carried by other
components in their holdings, namely railroads, airline and low
cost trucking firms. These types of companies were not heavily
impacted by the bearish tone from UPS (read:
How Will the Shipping ETF Sail in 2014?
In fact, IYT puts about 29% in railroads while delivery service
makes up for nearly 20% share. Meanwhile, XTN is heavily exposed
to trucking and airlines as these make up roughly 61% of the
total while air freight & logistics accounts for 20% share.
While IYT is more popular and liquid between the two choices, XTN
is cheap by 10 bps.
Both XTN and IYT are well diversified across various segments,
suggesting that the space can easily counter shocks from some of
the industry's biggest components. As such, investors shouldn't
completely write off transportation ETFs from their holdings
based on UPS' sluggish outlook (read:
3 Top Ranked ETFs That Will Crush the Market in
Moreover, the duo has a Zacks Rank of 2 or 'Buy' rating,
indicating that these could outperform the broad markets in the
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