The transportation sector has been on the move this week.
The IYT iShares Transportation Average ETF is up nearly 3% this week, surpassing the S&P 500 which has added just 0.1% this week, as stocks like Alaska Air (NYSE: ALK), JetBlue (NASDAQ: JBLU), and FedEx (NYSE: FDX) have moved higher.
But the next leg of the rally in transports will be driven by railroad stocks. That’s according to Miller Tabak equity strategist Matt Maley.
“This is a group that was actually a big concern for us about a month ago when the S&P 500 railroad index made a lower low and it looked like it was going to take the group lower, and this was particularly important because the railroads have been a good leading indicator for the entire transportation index all year long,” Maley said.
“However, they’ve bounced strongly in the month of October, and they’re now bumping up against their September highs,” Maley continued. “So if they can negate that lower low with a nice higher high, that’s going to be bullish.”
“C.H. Robinson is a fundamentally attractive name,” Tatro said. “They are not all that cheap – I mean they’re selling 18 times forward earnings with earnings basically to be flat next year, but this past year was a 36% earnings jump. So, if they can kind of pick that momentum back up and they tell us, ‘Hey, things are not all that bad and we’re actually moving things across the country,’ I could see this stock moving higher.”
C.H. Robinson is slated to deliver its Q3 results this coming Tuesday, and Barclays analyst Brandon Oglenski recently issued a $95 price target for the stock, indicating nearly 7% update from current prices.
As for LandStar, which is up 20% year-to-date, Tatro said, “This one has a really exceptional backdrop regarding the balance sheet and a nice dividend as well, so keep an eye on these two stocks”