Credit Suisse Just Called A Bottom In Rails, Goes Overweight On Trucks

So far this year, the transport stocks have lagged the S&P 500 by about 15 percent. However, according to a new report by Credit Suisse analyst Allison Landry, the fate of the transports is about to take a turn for the better.

Consumer strength is key
Landry believes that the resurgence in transports will result from the increasing power of the American consumer. However, Landry warns transport buyers that the end of the “industrial hangover” may not come until after the sector gets through what will likely be a very week Q2 earnings season.

The evidence
Credit Suisse sees evidence of a turnaround in the recent real personal consumption expenditure (PCE) numbers. “Recent evidence suggests that real PCE on goods has reached and inflection point – driven by a solid labor market and strong consumer confidence,” Landry explains.

She also mentions the improving housing market as another driver of consumer strength.

Outlook
The belief that transports are on the cusp of a rebound led Credit Suisse to three conclusions.

First, the firm is calling a bottom for Rail stocks and sees incremental pricing improvements in the second half of the year.

Second, Credit Suisse is also moving to Overweight on Truckload stocks, calling for improving demand after only marginal capacity additions in the first half of the year.

Finally, Credit Suisse is rotating out of less than truckload (LTL) names and into full truckload (TL) names.

In the report, the firm upgraded Knight Transportation Inc (NYSE: KNX) from Neutral to Outperform and downgraded Con-way Inc (NYSE: CNW) from Outperform to Neutral.