The Xchange Blog

The New Industrial Revolution. Will Transportation Take You There?

Just days ago, we highlighted the industrial sector, namely Defense. In this article we’re highlighting Transportation.

While defense contractors are thriving because of federal policy, transport and delivery companies seem to be chugging along in spite of it. In the face of real price increases from tariffs that will ultimately drive up prices, the Direxion Daily Transportation Bull 3X Shares ETF (TPOR) has still been able to climb more than 27 percent (as of 09/24/18) since July.

 

TPOR vs. Dow Jones Transportation Average (DJTTR)

Data Range: 7/1/2018 – 9/25/2018. Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For standardized performance and the most recent month-end performance, click here.

Rail companies in particular are riding high on strong consumer spending  and increased demand from domestic manufacturers that has started making its way through their 2018 balance sheets. Norfolk Southern, Union Pacific, and CSX in particular have had solid YoY revenue growth between 7 and 10 percent according to their most recent reports. The train stocks also have a long-term growth trend starting from early 2016 that has put them up by 125 percent to 230 percent in the case of CSX.

Trucking stocks have also benefited from the strong consumer and business sentiment that’s keeping the freight lines chugging, although Old Dominion Freight Line and JB Hunt have recently lagged compared to their rail counterparts due to fears of cyclical trends and overvaluation compared to their on-rails competitors.

Given economic indicators like steadily rising GDP growth and strong consumer sentiment, as well as limited direct exposure to Chinese markets, transport stocks like the above as well as FedEx and UPS will likely see strong results in the upcoming earnings season. However, there may be an inevitable fallout from the trade war: rising prices driving up costs and eating into profits.

Retailers like Walmart and Target could be important bellwethers for when the tariff worm does begin to turn, as could global oil prices should U.S. sanctions on Iran drive down surplus. However, freight and delivery may still have enough business and consumer enthusiasm and low enough overhead to reach the October/November reporting window near their tops for another push.

 

Related Leveraged ETFs

 

 


Each leveraged ETF seeks investment results that are 300% of the return of its benchmark index for a single day. Each Fund should not be expected to provide returns which are three times the return of benchmark’s cumulative return for periods greater than a day. Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investment.
 
TPOR Risks – An investment in the Fund involves risk, including the possible loss of principal. The Fund is non-diversified and includes risks associated with the Fund concentrating its investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. The Fund does not attempt to, and should not be expected to, provide returns which are three times the performance of its underlying index for periods other than a single day. Risks of the Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, Daily Index Correlation Risk, Other Investment Companies (including ETFs) Risk and risks specific to investment in the securities of the Transportation Industry and the Industrials Sector. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.
 
Dow Jones Transportation Average (DJTTR) – Provided by Dow Jones U.S. Index and measures the performance of large, well-known companies within the transportation industry (e.g. shipping, railroad companies, airlines, etc.). One cannot directly invest in an index.