Rail & Trucking On the Move - Zacks Industry Rank Analysis

Industry Rank Analysis 07-28-10

There is certainly a fair amount of gloom out there about the health of the U.S. economy. However, if the economy is so awful, then why are times so good for the companies that actually move stuff around? The two industries that are responsible for moving freight around the country are doing very nicely, according to their Zacks ranks.

The Zacks industry classifications are very fine, with 256 different industries tracked. It is not particularly noteworthy if a single small industry shows up doing well — a single firm with good news can propel a one- or two-firm industry to the top of the charts. But it is interesting when you see a cluster of similar industries at the top of the list. The same holds true for the bottom of the list.

However, in this case, the industries are not particularly small in terms of the number of companies involved. The Railroad industry has 23 firms in it, yet it ranks 13th out of the 256 industries we track. Of those firms, just one, CSX Corp. (CSX) has the coveted Zacks #1 Rank (Strong Buy). However, an additional 5 hold a rank of #2 (Buy).

Only the best 5% of all socks are awarded with a Zacks #1 Rank and the next 15% get Zacks #2 Ranks. Thus if it were totally random, one would only expect 20% of the firms in an industry to have ranks of #1 or #2 (this mirrors the number #5 and #4 ranks, respectively).

For the Railroads, 75% have ranks that make them interesting investment situations. The average Zacks rank of the industry as a whole is 2.13, versus 2.25 last week.

The main competition for the railroads are the Trucking firms, and they are looking good as well, so it is not just a case of the Rails picking up share from the Truckers. The Trucking industry is much larger in terms of the number of companies, with 23 firms. That makes its appearance in the 17th spot that much more impressive. The industry has 4 Zacks #1 Ranked firms and 10 number Zacks #2 Ranked firms.

The first table below shows the stocks from industries that hold the coveted Zacks #1 Rank. The second table shows the ones with the attractive Zacks #2 Rank. Historically, #1-ranked stocks have far outperformed the overall market, and stocks with #2 ranks have also tended to outperform. The firms range in size from large caps to micro caps, with more of the large caps being found among the Railroads, and the Truckers being mostly smaller-cap firms.

One thing to note is that while the Zacks ranks on these companies are impressive, the valuations — particularly given the overall valuation of the market — are not. Thus is it is possible that the good news has already been priced into these names.

Number 1 Ranked Stocks

Company	Ticker	Market Cap ($ mil)	P/E Using Curr FY Est	P/E Using Next FY Est	% Change Curr FY Est – 4 wk	% Change Next FY Est – 4 wk	Current Price
Csx Corp	CSX	$20,625	13.75	11.89	7.54%	5.02%	$52.99
Old Dominion Fl	ODFL	$1,418	24.83	17.68	0.00%	0.00%	$38.02
Forward Air Crp	FWRD	$849	28.17	21.96	10.10%	9.43%	$29.30
Patriot Transpt	PATR	$237	44.42	39.96	0.00%	0.00%	$77.52
Covenant Trans	CVTI	$130	32.71	15.02	2200.00%	94.68%	$9.16

Number 2 Ranked Stocks

Company	Ticker	Market Cap ($ mil)	P/E Using Curr FY Est	P/E Using Next FY Est	% Change Curr FY Est – 4 wk	% Change Next FY Est – 4 wk	Current Price
Union Pac Corp	UNP	$37,756	14.47	12.53	9.27%	5.90%	$74.63
Cdn Natl Ry Co	CNI	$28,980	15.63	13.86	4.26%	1.09%	$61.88
Norfolk Southrn	NSC	$20,916	15.04	12.7	1.39%	0.79%	$56.52
Hunt (Jb) Trans	JBHT	$4,549	22.69	17.65	6.35%	5.30%	$35.73
Landstar System	LSTR	$2,049	22.06	18.15	1.50%	1.48%	$40.85
Knight Transn	KNX	$1,804	28.43	22.31	2.77%	1.43%	$21.61
Werner Entrprs	WERN	$1,717	22.15	17.95	6.23%	3.48%	$23.73
Genesee & Wyo	GWR	$1,655	23.57	17.99	-1.56%	0.79%	$40.35
Heartland Exp	HTLD	$1,469	24.57	20.15	6.13%	1.02%	$16.20
Railamerica Inc	RA	$611	36.14	16.89	-3.75%	-0.45%	$11.13
Marten Trans	MRTN	$505	24.33	17.81	2.34%	1.57%	$23.03
Celadon Group	CGI	$354	26.14	17.66	2.36%	5.88%	$15.89
Yrc Worldwd Inc	YRCW	$331	N/A	N/A	1.90%	-0.43%	$0.31
Usa Truck Inc	USAK	$177	N/A	26.85	38.89%	2.62%	$16.81
Pam Transport	PTSI	$140	95.81	26.05	0.00%	0.00%	$14.85

Sector Data

Sector	“This Week’s Zacks Rank ”	“Week ago Zacks Rank ”	“FY10 Revisions Ratio ”	“FY10 Estimates Revised Up ”	“FY10 Estimates Revised Down ”	“FY11 Revisions Ratio ”
Auto-Tires-Trucks	2.59	2.73	2.12	70	33	2.52
Transportation	2.72	2.72	2.05	352	172	1.94
Computer and Technology	2.86	2.89	1.99	843	424	1.81
Basic Materials	2.9	2.93	0.95	196	207	1.15
Aerospace	2.9	2.95	0.79	38	48	0.76
Industrial Products	2.94	2.94	2.09	232	111	1.86
Consumer Discretionary	2.98	2.98	1.63	312	191	1.25
Business Services	3.01	3	0.89	134	150	0.79
Utilities	3.02	3.07	1.48	155	105	0.92
Consumer Staples	3.03	3.06	1.65	167	101	1.76
Medical	3.04	3.03	0.91	404	442	0.73
Retail-Wholesale	3.06	3	0.89	292	327	0.77
Construction	3.07	3.01	0.54	63	116	0.41
Oils-Energy	3.09	3.08	0.7	482	690	0.71
Finance	3.11	3.07	0.8	932	1159	0.56
Conglomerates	3.13	3.04	3.93	55	14	1.27

In evaluating the Zacks Industry Ranks, you want to see two things: a good overall score (low, meaning more Zacks #1 and #2 Ranked stocks than #4 or #5 Ranked stocks) and some improvement the relative position from the prior week. It is also helpful to understand exactly what the Zacks Industry Rank is.

The Zacks Industry Rank is the un-weighted average of the individual Zacks ranks of the firms in that industry. It does not matter if the stock is the 800 lb gorilla that dominates the industry or some very small niche player in the industry — they have the same influence on the industry rank.

Also, that means that the bigger the industry in terms of number of firms, the less influence any given company has on the industry rank. It also implies that small industries, with just two or three firms, should be the ones found at either the top or the bottom of the list. After all, if there are only two firms in the industry, it is relatively easy to get a Zacks rank of 2.00 (i.e. one with a Zacks Rank of #1 and the other with a #3). Right now, that industry rank would be tied for 6th place among the 255 industries tracked.

The same obviously goes for the bottom of the list as well. If there are 50 firms in the industry, and it ends up at one of the extremes, that means there has to be something pretty significant going on. Thus, I do not always focus on the very highest rated industries, but on the highest rated ones in which there are a large number of firms.

Click here for the Zacks Industry Rank List: http://www.zacks.com/zrank/zrank_inds.php

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

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Rail & Trucking On the Move – Zacks Industry Rank Analysis

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