Trucks, Trains and the Economy

Posted by: Ben Steverman on May 7, 2008

Transportation stocks have done well this year — the Dow Jones Transportation index is up almost 14% from the beginning of the year. Transport stocks are often seen as a good gauge for economic prospects. Pessimistic at the end of 2007, investors in transport stocks seem to be betting on a strong second-half recovery for the U.S. economy.

Today, however, Wall Street’s mood darkened: The broader market fell almost 2% and the transportation index dropped 3%.

For most of this year, railroad stocks and trucking stocks have tracked each other closely.
But while railroad stocks (measured by the Dow Jones U.S. Railroad Index) dropped 2.7% today, trucking stocks (the Dow Jones U.S. Trucking Index) plunged 4.5%.

Why the difference? Today the price of oil rose another $2 per barrel, getting awful close to $124 per barrel. This hits truckers harder than railroads because trains are far more energy efficent than trucks.

Trucks are “three times more fuel intensive,” according to Lee Klaskow of Longbow Research.

There’s another reason railroads might be favored by investors: The freight they handle is arguably less sensitive to an economic slowdown. “Railroads tend to haul more defensive freight than trucks, in our view,” Klaskow wrote May 6.

For more on transportation stocks, check out Eric Roseman’s interesting post on the topic.

Reader Comments

Bud Labitan

May 8, 2008 9:54 AM

When Warren Buffett and Berkshire Hathaway bought shares in the railroad company Burlington Northern, they knew the facts you mention in this article. Your readers may like a new book that I wrote called "The Four Filters Invention of Warren Buffett and Charlie Munger." It is available at www.frips.com

As significant as the refinement of the microscope by Antonie van Leeuwenhoek, I believe that Warren Buffett and Charlie Munger invented an investing formula that is underappreciated by the business and academic communities. In my view, the Four Filters developed by Warren E. Buffett and Charles T. Munger is an amazing intellectual achievement in both practical and Behavioral Finance.

These days, Warren Buffett mentions the Four Filters this way: “Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.” These Four Filters can enhance the probability of our investment success. I think they will help you in your search for intrinsic value and sensible investment.

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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