The iShares Transportation Average ETF IYT, the largest exchange-traded fund dedicated to transportation stocks, is lower by almost 3 percent this year, but some analysts believe the sector can rebound.
The iShares Transportation Average ETF tracks the widely followed Dow Jones Transportation Average Index, which is home to just 20 stocks. IYT, which has $928.2 million in assets under management, is CFRA Research's focus ETF for the month of March.
Among IYT's 20 holdings are some stocks CFRA views favorably from risk and valuation perspectives, the research firm said in a Thursday note.
IYT allocates almost 19.4 percent of its weight to airlines, the ETF's third-largest industry weight. The broader airline space declined slightly in February even as oil prices tumbled, but airline stocks could be poised to bounce back.
“With airlines, CFRA Equity Analyst Jim Corridore expects companies in the sub-industry to increase fares in 2018, aided by improved demand,” said CFRA Director of ETF & Mutual Fund Research Todd Rosenbluth. “Airlines have been trimming excess capacity, which Corridore thinks will allow for better pricing power in 2018.”
IYT's largest airline holdings are Southwest Airlines LUV and Delta Airlines Inc. DAL. Those stocks combine for over 7 percent of the ETF's weight.
Air freight and logistics companies are IYT's largest industry exposure at over 30 percent. That could prove useful if CFRA's positive view on that group proves warranted.
“CFRA also is bullish on the fundamentals for air freight & logistics companies and thinks the valuations are likely to expand as signs emerge for U.S. and global economic improvement,” said Rosenbluth. “Although customers are currently using lower-priced delivery methods, Corridore sees improving volume and yield trends on expanding shipping demand, aided by growing e-commerce, and improved pricing during the next year.”
The research firm has nine Buy or Strong Buy ratings on logistics stocks. CFRA has an Overweight rating on IYT.
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