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April 23, 2022, 8:37 a.m. EDT

Why consider the Dow transports when they point to a slowing economy? Because these 7 stocks are cheap

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By Philip van Doorn

The Dow Jones Transportation Average has long been considered a good forward indicator of the direction of the U.S. economy. With early signs that an economic slowdown is coming, this might be an obvious portion of the stock market to avoid.

Then again, this group of 20 stocks includes four that are both expected to be profitable this year and grow earnings at a double-digit pace through 2024. It also includes some bargain stocks, especially if you believe the dark days of the pandemic are behind us.

The transportation warning

First, here’s a chart showing total returns (with dividend reinvested) for the Dow Jones Transportation Average /zigman2/quotes/210598063/delayed DJT +0.18% , the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.14% and the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.23% this year through April 14:

The Dow Transports have been bringing up the rear. Following a 5% drop for the Dow Transports on April 1, a day when the Dow Jones Industrial Average and the S&P 500 were up, Mark Hulbert called the action a “ bad omen .” He cited government data correlating poor performance among transportation stocks with economic slowdowns over succeeding months.

Along with this year’s weak showing for the Dow Transports, consumer and wholesale price increases were at 40-year highs in March, and the Federal Reserve is expected to accelerate its interest-rate increases and begin reducing its bond holdings soon to counter inflation. Rising rates have given home builders the jitters , and it remains to be seen if the Fed’s moves will cause a recession or lead to a “soft landing” for the economy.

The case for (some of the) Dow Transports

To screen the Dow Jones Transportation Average, we began with the entire list of 20 stocks and consensus 2022 estimates for earnings per share, among analysts polled by FactSet. A baseline of 2022 may be more useful than a 2021 starting point, because of the pandemic-induced turmoil for airlines and the supply squeezes that affected other industries.

Here are the 20 stocks in the Dow Jones Transportation Average, sorted by industry and then alphabetically, with projected compound annual growth rates (CAGR) for earnings per share through 2024:

Company Ticker Industry Estimated EPS – 2022 Estimated EPS – 2023 Estimated EPS – 2024 Two-year estimated EPS CAGR Price/ 2024 EPS estimate
C.H. Robinson Worldwide Inc. CHRW Air Freight/ Couriers $6.35 $5.78 $5.95 -3.2% 17.4
Expeditors International of Washington Inc. /zigman2/quotes/203110734/composite EXPD Air Freight/ Couriers $6.99 $5.87 $5.57 -10.8% 17.4
FedEx Corp. /zigman2/quotes/203047719/composite FDX Air Freight/ Couriers $21.72 $23.87 $25.84 9.1% 8.0
United Parcel Service Inc. Class B /zigman2/quotes/201245396/composite UPS Air Freight/ Couriers $12.78 $13.40 $13.76 3.8% 13.7
Alaska Air Group Inc. /zigman2/quotes/200972303/composite ALK Airlines $3.00 $6.23 $8.28 66.3% 6.9
American Airlines Group Inc. /zigman2/quotes/209207041/composite AAL Airlines -$3.44 $1.57 $3.63 N/A 5.2
Delta Air Lines Inc. /zigman2/quotes/200327741/composite DAL Airlines $2.53 $5.83 $7.25 69.4% 5.8
JetBlue Airways Corp. /zigman2/quotes/207639051/composite JBLU Airlines -$0.49 $1.28 $2.14 N/A 6.0
Southwest Airlines Co. /zigman2/quotes/201071949/composite LUV Airlines $1.13 $3.11 $4.28 94.6% 10.9
United Airlines Holdings Inc. /zigman2/quotes/205037281/composite UAL Airlines -$2.52 $6.26 $8.80 N/A 5.1
Avis Budget Group Inc. /zigman2/quotes/203618115/composite CAR Rental/ Leasing $22.55 $15.93 $14.82 -18.9% 17.9
Ryder System Inc. /zigman2/quotes/208674852/composite R Rental/ Leasing $11.60 $10.17 $11.75 0.7% 5.4
Kirby Corp. /zigman2/quotes/207111313/composite KEX Marine Shipping $2.11 $3.39 $4.46 45.3% 14.9
Matson Inc. /zigman2/quotes/205690765/composite MATX Marine Shipping $26.11 $11.21 $6.31 -50.8% 13.9
CSX Corp. Railroads $1.79 $1.96 $2.15 9.6% 16.3
Norfolk Southern Corp. /zigman2/quotes/200877725/composite NSC Railroads $13.82 $15.27 $16.50 9.3% 15.9
Union Pacific Corp. /zigman2/quotes/209717171/composite UNP Railroads $11.65 $12.96 $13.93 9.3% 17.7
J.B. Hunt Transport Services Inc. /zigman2/quotes/205536609/composite JBHT Trucking $8.84 $9.75 $10.35 8.2% 16.6
Landstar System Inc. /zigman2/quotes/207418022/composite LSTR Trucking $11.08 $9.49 $9.54 -7.2% 15.2
Old Dominion Freight Line Inc. /zigman2/quotes/205822689/composite ODFL Trucking $11.01 $12.06 $12.80 7.8% 20.7
Source: FactSet

Click on the tickers for more about each company.

Click  here  for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

The estimates are for calendar years, because some companies have fiscal years that don’t match the calendar. For example, FedEx Corp.’s fiscal year ends on May 31.

Some notes about the data:

  • Among the 20 stocks, American Air Lines Group Inc. /zigman2/quotes/209207041/composite AAL -2.19% , JetBlue Airways Corp. /zigman2/quotes/207639051/composite JBLU +1.74% and United Airlines Holdings Inc. /zigman2/quotes/205037281/composite UAL -2.91% are expected to show net losses for 2022, so there are no EPS CGAR figures in the table.

  • Among companies expected to be profitable this year, four — Alaska Air Group Inc. /zigman2/quotes/200972303/composite ALK -1.81% , Delta Air Lines Inc. /zigman2/quotes/200327741/composite DAL -1.70% , Southwest Airlines Co. /zigman2/quotes/201071949/composite LUV -1.83% and Kirby Corp. /zigman2/quotes/207111313/composite KEX +4.10% — are expected to show double-digit EPS CAGR through 2024.

  • Among the 20 stocks, seven trade for 8.0 times consensus 2024 EPS estimates or lower. These include all the airline stocks except for Southwest, along with FedEx Corp. /zigman2/quotes/203047719/composite FDX -0.56% and Ryder System Inc. /zigman2/quotes/208674852/composite R +0.88% . In comparison, the S&P 500 trades for 16 times its weighted aggregate consensus 2024 EPS estimate.

  • Note that a low valuation to expected earnings means a good number of investors aren’t (or aren’t yet) confident about a company’s prospects or those of its industry.

Any stock screen has its limitations and should only serve as a starting point for your own research.

Don’t miss: Inflation is raging, but these 16 companies have pricing power

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$240,541
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$ 62.92
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Rev. per Employee
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N/A
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P/E Ratio
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N/A
Market Cap
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$344,578
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-0.76 -1.81%
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Market Cap
$5.29 billion
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$309,202
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US : U.S.: NYSE
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Rev. per Employee
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P/E Ratio
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$334,519
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US : U.S.: NYSE
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$ 241.88
-1.36 -0.56%
Volume: 1.28M
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1.90%
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$63.04 billion
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