Transportation stocks are at the top of the performance leaderboard on a day the overall market is treading water. Wall Street can hide a lot of their intentions, but they cannot keep secret where they are allocation dollars. Investors would be wise to pay attention to which industries the "smart money" is buying.
Identifying the parts of the market that are delivering the best performance is the easy part. Taking advantage of the strength is another matter. Investors can A) invest in a sector ETF/ mutual fund or B) buy the stocks driving sector prices higher.
In choosing an ETF, it's critical to know what percentage of the fund is actually invested in the underlying sector of choice; transportation stocks in this case. iStock has identified one exchange traded funds with 99.59% of its constituents consisting of transportation stocks.
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iShares Dow Jones Transportation Average (ETF)(NYSEARCA:IYT) is the purest transportation ETF play available to investors, according to our analysis. The investment seeks to track the investment results of an index composed of U.S. equities in the transportation sector. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index.
For those who like the diversified approach, IYT is all the deeper you have to go, but for those who prefer individual stocks, it makes sense to pull the cover back and see which equities within the portfolio are pulling the cart.
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Today, we see United Continental Holdings Inc (NYSE:UAL) leading the charge, up 3.47% as we type. Additionally, Con-way Inc (NYSE:CNW), JetBlue Airways Corporation (NASDAQ:JBLU), and CSX Corporation (NYSE:CSX) are chasing UAL and up more than 1% as of this keystroke.
How you select a stock is up to you, but once you know which stocks Wall Street likes, based on the day's performance, you have options. Investors could buy all of the top performers and create their own, personalized ETF.
Another option is to buy the top performers and short the ETF. As long as the leading companies continue to outperform the fund, IYT in this case, this strategy will return a profit no matter if the overall market goes up or down.
From our perspective, we prefer to look at the charts when utilizing momentum as our security selection criteria. iStock isn't impressed with the technical patterns of any the four, but if we had to pick one, we'd probably go with UAL.
The airliner is clearly trending higher, but has been consolidating for the most part of 2014. We also see United Continental's MACD line turning vertically north. If shares can get to the better side of $48 on a close, especially if accompanied by strong volume, then UAL could be poised for a breakout.
Although UAL has some work to do before busting loose, in our opinion, we believe it is excellent practice for investors seeking investable ideas to monitor sector performance, identifying the purest ETFs as defined by holdings, and then focusing on the stocks driving the performance. This routine will help you find equities that institutions are buying and on the move right now.
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