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Delta and 3 Other Transportation Stocks in High Gear

The transportation sector is highly diversified with airlines, truckers, shippers and railroads running alongside. Now, the one and vital factor that's common for each of these drivers is low oil prices as fuel accounts for the majority of input cost for any transportation company.

Airlines: Biggest Beneficiary of Weak Oil

The free-fall in oil prices which has now lasted for over one year has benefited the airline stocks like no other. Operating expenses of these stocks have been reduced because one of the major input costs for carriers is fuel. The horror show of oil is actually nothing short of a godsend for these players that have seen their bottom lines being benefited greatly.

The magnitude of the benefit can be made out from the fact that oil prices are currently hovering around $45 per barrel, representing an over 100% decline from the mid-2014 levels when oil was trading above $100 per barrel.

Naturally, this huge decline in one of the largest input costs has resulted in massive savings for carriers. Despite the fact that most carriers hedge at least some of their fuel costs, the majority of them should still continue to benefit considerably from the steep decline in oil prices.

For example, the Fort Worth, TX-based American Airlines Group AAL , which does not hedge fuel costs, expects to generate savings to the tune of $4.8 billion in 2015 thanks to soft oil prices. The Atlanta, GA-based Delta Air Lines Inc. DAL , which has restructured its fuel hedge portfolio in the wake of the soft fuel price environment, also expects to generate savings of over $2 billion in 2015.

The solid financial health of the airline stocks has resulted in most of them like Delta and Southwest Airlines LUV rewarding shareholders through fresh buyback programs apart from hiking their dividend payments. Carriers have also used their favorable financial position to reduce debt levels.

Weak Oil Should Benefit Carriers in Q3, Too

The fall in oil prices -- which has been going on for quite some time -- has resulted in blockbuster earnings for airline companies over the last few quarters.

In the second quarter of 2015, the airline industry amassed record quarterly profits in excess of $5 billion, all thanks to the plunge in fuel prices. This is expected to continue in the third quarter earnings season, which will be kick-started by Delta on Oct 14. We expect the company to better estimates on the back of low fuel costs. The company has a solid earnings history, having surpassed the Zacks Consensus Estimate in each of the last four quarters.

Airlines' Good Zacks Industry Rank Supports Bullish View

Most of the stocks in the airline space is seeing solid earnings estimate revisions, and is in great company from the Zacks Industry Rank perspective.

This is important because often a rising tide will lift all the boats. Likewise, broad trends in a sector can boost stocks across the board. The Zacks Industry Rank #28 for the "Trans-Airline" segment that places it at the top 1/3rd of the 260+ industry groups further supports the bullish stance on airline stocks.

Transportation to Log Double-Digit Growth

With airline stocks flying high, it is quite natural that the broader transportation sector is expected to give a handsome performance in the third quarter. This is despite the fact that the poor show of railroads is expected to continue courtesy weak domestic coal shipments.

Earnings growth for the S&P members in the transportation space is projected to grow at 17.3% in the third quarter of 2015 which compares favorably with 12.6% growth seen in the second quarter (read more: Zacks Earning Trends report ).

Boost Your Portfolio with 4 High-Flying Transportation Stocks

In view of the overall positive sentiment surrounding the transportation sector, mainly due to the high-flying airlines' sub-group, we believe that it is certainly a profitable strategy for investors to include some well-performing transportation stocks in their portfolios for higher returns.

However, it is by no means an easy task to select the right stocks given the wide range of players in the transportation space. To make one's search easier, we have handpicked transportation stocks that are backed by a good Zacks Growth Score apart from a Zacks Rank #1 (Strong Buy). Then we narrowed down our list to four gainful stocks with the help of our new style score system .

Notably, our research shows that stocks with Style Scores of 'A' or 'B' when combined with a Zacks Rank #1 or #2 (Buy) offer the best investment opportunities.

Airline behemoth Delta Air Lines is our first choice. The carrier boasts a Growth Style Score of 'A.' The company's expected earnings growth rate for the current year is 39%, which compares favorably with the industry growth rate of 8.1%.

Our next choice is FreightCar America Inc.RAIL which designs, manufactures, and sells aluminum-bodied railcars and coal cars. This Chicago-based transportation company has a Growth Style Score of 'A.' The company's expected earnings growth rate for the current year is more than 100%, way above the industry average of 10.7%.

We also advise investors to add Long Island City, NY-based low-cost carrier JetBlue Airways CorporationJBLU to their portfolio. This high-flying airline stock has a Growth Style Score of 'B' and an expected earnings growth rate for the current year of over 100%, which is way above the industry average of 8.1%.

Our final choice is the St. George, UT-based carrier SkyWest Inc.SKYW . The carrier has a Growth Style Score of 'B' with an expected earnings growth rate for the current year exceeding 100%, again way above the industry average of 8.1%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

SOUTHWEST AIR (LUV): Free Stock Analysis Report

JETBLUE AIRWAYS (JBLU): Free Stock Analysis Report

DELTA AIR LINES (DAL): Free Stock Analysis Report

SKYWEST INC (SKYW): Free Stock Analysis Report

AMER AIRLINES (AAL): Free Stock Analysis Report

FREIGHTCAR AMER (RAIL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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