The iShares Transportation Average ETF (NYSEArca: IYT), the tracking exchange traded fund for the Dow Jones Transportation Average, and rival transportation ETFs have struggled this year. However, some technical analysts believe the worst is behind cyclical transports.
Railroad stocks have been falling off this year, but the decent dividends, low valuations and continued economic growth may provide a cheap entry point for investors looking into the industry, reports Jeff Reeves for MarketWatch.
So far this year, the railway industry has been weakening on lower rail traffic after the drop in energy prices, notably from oil and coal companies. Over the first 35 weeks of the year, U.S. railroads experienced cumulative volume that was down more than 4% year-over-year. However, the pressures may have already been priced in, and the industry has a number of factors that will help support further growth.
Many railroad companies have become more efficient, cutting costs wherever they can, which should help bolster their bottom line ahead. Additionally, market observers are optimistic about a cyclical recovery where U.S. consumers and businesses spend more, which would add to increased activity through railways and transportation sectors. Railroads are popular plays among some of the largest investors, including Bill Gates and Warren Buffett. [Sector ETF to Play Warren Buffett, Bill Gates’ Pick]
“We can see relative performance turning up in July but peaking in September. It has been drifting slowly lower ever since. To combat this, investors should require that a full plate of technicals – from trendlines to volume to momentum – line up before jumping in,” reports Michael Kahn for Barron’s. “The airlines group is also in position for a breakout but in this case it is a resistance ceiling and not a trendline. And also unlike the broader Dow Transports Average, the Dow Jones U.S. airlines index is already trading above its 200-day moving average.”
Additionally, the lower fuel price outlook could also support the airlines as well. While transportation sector ETFs may provide a small exposure to airliners, investors can also take a look at the U.S. Global Jets ETF (NYSEArca: JETS), the only dedicated airline ETF on the market today, to target the global airline industry. [Familiar Catalyst for Airline Stocks, ETF]
iShares Transportation Average ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.