It's easy when watching the financial news media to focus on the bright, shiny objects constantly dangled before us. You know, the Apple Inc.'s (NASDAQ: AAPL) Amazon.com Inc.'s (NASDAQ: AMZN), and Facebook Inc.'s (NASDAQ: FB) of the world.
One of the things I've designed my Best in Breed (BIB) model to do is ignore the hype and focus on the sectors and stocks that are the true outperformers and laggards.
That means mining the data for not only the best of the best and worst of the worst, but also determining whether that performance trend will continue.
Lost in the hype of Apple's new product line, Amazon becoming a trillion-dollar company, and the latest craziness at Tesla is a sector that nobody is talking about - the transportation group.
It just so happens to be the hottest off-the-radar sector out there in the second half of the year. Neither energy, technology, biotech, financials, retail, nor any of the major market indexes can match it.
The iShares Transportation Average (IYT) has been on fire since the beginning of July, gaining around 11%. In fact, IYT set a record high this week. The ETF's top 10 holdings represent a mix of delivery, trucking, railroad, and marine stocks.
Today, I want to focus on the two main trucking stocks in IYT that I believe have plenty left in their tanks to keep their rallies alive, so let's take a look...
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This Stock Is a Constant on My Radar
First up is C.H. Robinson Worldwide Inc. (NASDAQ: CHRW), which comprises about 5% of IYT. Based in Eden Prairie, Minn, C.H. Robinson provides freight transportation and logistics services worldwide.
This is a stock that I constantly have on my radar because it seems to be constantly overlooked and underloved (a perfect bullish combination in my book).
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In fact, earlier this year, my Seismic Profit Alert subscribers booked a 116% gain on a C.H. Robinson call trade that was open for just four weeks.
Currently, C.H. Robinson is enjoying a 20% rally that started off a late-June low. What's more, the shares reached an all-time high earlier this week after taking out the previous high set in January.
It's notable that last year at about the same time (mid-July), the stock began a huge 58% rally that lasted six months.
The key to my bullishness toward C.H. Robinson doesn't end with the chart, though. It's the reaction from analysts and traders that intrigues me.
You see, despite the current rally, just four of 22 covering analysts rate C.H. Robinson a "Buy." What chart are they looking at? This tells me that there's more than enough room on the C.H. Robinson bandwagon for upgrades from this skeptical bunch.
What's more, the short-interest ratio (number of shorted shares divided by the average daily trading volume) stands at a robust 8.0. Any reading above 6 means a stock is more likely to benefit from a short-covering rally that will add buying pressure to any upside momentum.
The combination of a short squeeze with analyst upgrades has me looking for C.H. Robinson to continue the uptrend through the end of the year. Look at the Jan. 18, 2019 95-strike call to leverage the rally.
This Stock Has Plenty of Upcoming Happy Returns
Another trucker on my bullish list is Landstar System Inc. (NASDAQ: LSTR). Based in Jacksonville, Fla., Landstar also makes up about 5% of IYT.
In addition, like C.H. Robinson, the stock hit a new high this week, although it has pulled back the past two days likely because of disruptions caused by Hurricane Florence. The stock is up around 19% off its July low, even with the late decline. And like C.H. Robinson, the stock had a monster second half in 2017, gaining nearly 50% from mid-August to late January.
Landstar is similar to C.H. Robinson in terms of analysts and the shorts. Only three of 15 analysts believe the stock is a buy, meaning the stock is ripe for upgrades and additional coverage that would likely be favorable.
And with a short-interest ratio of 7.4, a renewed push into new-high territory would likely have the shorts running for cover (i.e., buying shares). Either way, the next few months should bring happy returns for Landstar buyers. A Jan. 18, 2019 125-strike call should capture the move quite nicely.
Tomorrow I'll be back with a couple of railroad stocks from IYT's top 10 that should have investors smiling through the end of the year.
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About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.