Transporting Gains

12/17/2004 12:00 am EST

Focus:

Jon Markman

Editor, Trader's Advantage

I'm always impressed with Jon Markman, as he presents the complexities of swing trading in a clear and unhedged manner for the novice and sophisticated trader alike. In his latest StockTactics Advisor, he gets on board the transportation sector for his latest trades.

"While the US economy appears on the surface to be one big holistic machine of capitalist production, in fact it has two main parts: the front end and the back end. The front end is the part that we interact with as consumers. The back end are the manufacturers, energy producers, and transporters. The 'front end' has been fairly decent this year. Yet this year it is the behind-the-scenes companies, the 'back end' of the economy, that have shined. Indeed, the transports have shown that they can grow nicely in a low-growth environment, as they have cut costs and utilized technology more than just about any other sector of the nation’s industrial base. They have also shown a remarkable ability to use surcharges to pass energy costs along to their customers, an effort that has kept margins stable and, in some cases, higher.

"We have had a lot of success with the trend this year. Among our recent swing trades,Yellow (YELL NASDAQ) continues to be a rock solid momentum trade in the trucking/ transports group We couldn’t ask for a more beautiful trend, accompanied with good fundamentals, as the company keeps raising its guidance. We also recently opened a swing trade in global transportation logistics provider Expeditors International of Washington (EXPD NASDAQ) after it took a tumble a month ago. Expeditors is recovering gracefully from its stumble and is up about 6%. Our target of $61.75 represents a move to new highs, which we think is achievable over the next month.

"Now we advise that you also take a look at Landstar System (LSTR NASDAQ), which is a domestic version of the same business that Expeditors dominates internationally, focusing primarily on trucks carrying goods in the United States, Canada, and Mexico. Landstar has no trucks of its own; instead, it leverages a network of 1,000 agents, brokers, and third-party capacity providers to move steel, autos, paper, wood, chemicals, food, machinery, military goods, and other stuff around North America. Landstar shares have risen in the past seven consecutive years, offering compound growth over just the past five years of more than 30%. But 2004 has been its best year ever, with a gain of 91% so far. It recently provided a mid-quarter update that was upbeat, and greeted positively. For new investors, we think the good news is that shares of Landstar have consolidated over the past one and a half months, but show signs of breaking out again. Our target is $88.

"And if you would like another swing trading choice along the same lines, check out UTI Worldwide (UTIW NASDAQ), which has a similar story: It is a non-asset transportation logistics mid-cap ($2 billion market cap) that has enjoyed solid long-term and short-term success, and a consolidating its uptrend. Its target would be $84. As swing trades, you probably don’t need both, so if the idea appeals to you just pick one.Meanwhile, traders who prefer smaller companies should consider hopping aboard Frozen Food Express (FFIX NASDAQ) or US Xpress Enterprises (XPRSA NASDAQ). The first has a market cap of $205 million, with 17.4 million shares outstanding; the second has a market cap of $361 million with 14 million shares outstanding. Both have recently announced strong quarterly earnings results and upgraded guidance for the next year, and both are consolidating in their uptrends. It is hard to say when they will break out, but we suspect both will at worst move sideways until they are ready to move higher. One advantage for Frozen Food is the name of its chairman. You just gotta like a company run by Stoney Stubbs, Jr. Again, you don’t need both of these. Try for FFEX at $11.05 or better; and try for XPRSA at $25 or better."

Related Articles on