Q: On the weekend, a prominent Canadian brokerage report noted the following:
" The Dow Transportation Index has outperformed the Dow Industrial Index by 405
basis points in November — the most we have seen since June 2023.
Through December 5, the Dow Transportation Index has continued to
outperform the broader index. Since the week ending November 21, the Dow
Transportation Index has outperformed the Dow Industrial Index for three
consecutive weeks and five of the last six weeks. "
The analyst also commented that most of this outperformance emanated from Freight equities and that they have seen a pick up in Dry van TL rates which gives them optimism that the freight cycle continues to slowly turn higher after a more-than-four-year recession.
They view TFII to be the greatest beneficiary of this turnaround.
Do you agree ?
And if one has no exposure to Transports, would this be a good time to initiate a position in this sector ? Also, what would be your preferred name among TFII, CNR and CP and why ?
Thank You
" The Dow Transportation Index has outperformed the Dow Industrial Index by 405
basis points in November — the most we have seen since June 2023.
Through December 5, the Dow Transportation Index has continued to
outperform the broader index. Since the week ending November 21, the Dow
Transportation Index has outperformed the Dow Industrial Index for three
consecutive weeks and five of the last six weeks. "
The analyst also commented that most of this outperformance emanated from Freight equities and that they have seen a pick up in Dry van TL rates which gives them optimism that the freight cycle continues to slowly turn higher after a more-than-four-year recession.
They view TFII to be the greatest beneficiary of this turnaround.
Do you agree ?
And if one has no exposure to Transports, would this be a good time to initiate a position in this sector ? Also, what would be your preferred name among TFII, CNR and CP and why ?
Thank You
5i Research Answer:
Of the three listed, we certainly do think TFII has the most upside potential from its depressed levels. We would, however, consider CNR and CP to be 'safer' and they are also larger. But their industry is more protected and can be a bit less cyclical. But we would be fine owning any of these, but it is important to note if the sector does not recover, TFII is still going to likely languish for a while. But it is not TFII's first slowdown, and it has always bounced, often making well-timed acquisitions. We think a small position in the sector makes sense, maybe a combo position of CNR/TFII.