3 Promising Transportation Stock Picks As Q4 Draws To A Close

Stocks in the transportation industry have gained immensely from the weakness in oil prices. This is because costs associated with oil form one of the major input costs for any transportation company.

Impressive Industry Backdrop in Q4

The positive impact of plunging Crude Oil prices can be seen from the impressive performance of transportation stocks, which have already revealed their fourth quarter financial numbers. Airline stocks like Delta Air Lines (NYSE:DAL) (NYSE:DAL) and (Southwest Airlines Company (NYSE:LUV)), among others, reported better-than-expected fourth quarter earnings, thanks primarily to plunging oil prices.

Railroad operators like Union Pacific (NYSE:UNP) Corporation (NYSE:UNP) and Kansas City Southern (NYSE:KSU) have also reported better-than-expected earnings in the final quarter of 2014. In addition to cheap oil, an improving economy also aided results for these companies. In fact, transportation stocks have been witnessing the most impressive rally since 2011, with strong performance across the entire spectrum.

Outperformers Still in the Bank

Most transportation stocks have already reported their financial numbers for the closing quarter of 2014. However, some stocks are yet to disclose their quarterly numbers. We believe most of those companies are poised to deliver strong numbers riding on the favorable trends currently prevalent in the transportation industry.

How to Pick the Right Stock?

Given the high degree of diversity in the transportation space, it isn’t an easy task to shortlist stocks that have the potential to report better-than-expected earnings. Here our proprietary methodology comes in handy. This is simply to look for stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Zacks Earnings ESP.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. An earnings beat more often than not gives a boost to investor confidence in the stocks, which translates into quick price appreciation.

We hereby present three transportation stocks which are expected to report better-than-earnings in their upcoming releases.

Fly Leasing Limited (NYSE:FLY): Based in Dublin, Ireland, this Zacks Rank #3 equipment & leasing stock currently has an earnings ESP of +3.13%. The Zacks Consensus Estimate for fourth-quarter 2014 earnings is pegged at 32 cents. The company has a decent track record with respect to earnings – it has delivered positive earnings surprises in two of the last four quarters, with a four-quarter average beat of 34.63%.

The company will report its fourth-quarter results on Mar 11, before the commencement of trading.

Ship Finance International Limited (NYSE:SFL): Based in Hamilton, Bermuda, this Zacks Rank #3 shipping stock has an earnings ESP of +16.67%. The Zacks Consensus Estimate for fourth-quarter 2014 earnings stands at 36 cents. The company has delivered positive earnings surprises in each of the last four quarters, with an average beat of 20.19%. The company is scheduled to report fourth quarter 2014 results on Feb 26.

GasLog Ltd (NYSE:GLOG): Based in Monaco, this Zacks Rank #3 shipping stock has an earnings ESP of +10.53%. The Zacks Consensus Estimate for fourth-quarter 2014 earnings is 19 cents. The company is scheduled to report on Feb 27.

The Bottom Line

We believe transportation stocks will continue to perform well driven by favorable factors like cheaper oil and an improving economy. Thus, for the time being, you can safely rely on the industry outperformers that possess significant earnings strength.

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