Skylands Capital’s Top Transportation Stocks for Q3

The performance of U.S. transportation stocks has mostly trailed the broader market thus far in 2016. The S&P Transportations Select Industry Index has returned 8% since the beginning of the year compared to the 6% return generated by the S&P 500 benchmark. The rate of personal consumer expenditures has been on a decline over the past few years and the U.S. economy seems to be struggling to keep demand high. As demand and consumer spending for goods and services decline, so does the demand for transportation services. But that doesn’t necessarily mean that there aren’t attractive investment plays within the U.S. transportation industry.

Insider Monkey decided to compile a list of transportation stocks favored by Charles Paquelet’s Skylands Capital LLC, a list that may contain some attractive investment opportunities that investors should not pass up. Skylands Capital is a Milwaukee-based long/short equity investment firm that manages four long-biased long/short portfolios, as well as long-only assets. The asset manager’s portfolio construction takes into account how macroeconomic trends are affecting individual companies and industries, so the five transportation stocks included in the forthcoming list may be poised to deliver strong returns in the foreseeable future.

At Insider Monkey, we track around 765 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).

#5. Delta Air Lines Inc. (NYSE:DAL)

– Shares Owned by Skylands Capital LLC (as of June 30): 242,550

– Value of Skylands Capital LLC’s Holding (as of June 30): $8.84 Million

Skylands Capital upped its position in Delta Air Lines Inc. (NYSE:DAL) by 14% during the June quarter to 242,550 shares. The increased position was valued at $8.84 million at the end of June and accounted for 1.4% of the value of the asset manager’s equity portfolio. The second-largest U.S. carrier has seen its market value plunge by 23% since the beginning of the year, as falling fares, terrorism fears and currency swings are hindering carriers’ growth prospects. Delta’s passenger unit revenue dropped by 4.9% year-over-year in the second quarter, worse than the 2.5%-to-4.5% decline previously anticipated by the airline. Delta anticipates the key industry benchmark to decline in the range of 4%-to-6% in the third quarter, so the company needs to get unit revenue back on a positive trajectory to achieve its long-term financial targets and satisfy investors. Delta shares look like a bargain at the moment, with the stock changing hands at around 6.6-times forward earnings. Ray Carroll’s Breton Hill Capital acquired a new stake of 22,087 shares of Delta Air Lines Inc. (NYSE:DAL) during the second quarter.

#4. CSX Corporation (NASDAQ:CSX)

– Shares Owned by Skylands Capital LLC (as of June 30): 372,300

– Value of Skylands Capital LLC’s Holding (as of June 30): $9.71 Million

The Milwaukee-based asset manager trimmed its stake in CSX Corporation (NASDAQ:CSX) by 18% during the April-to-June period, to 372,300 shares, with the reduced stake being worth $9.71 million on June 30. The provider of rail-based transportation services managed to deliver better than anticipated second quarter results despite being hit by the slumping U.S. coal market. The Florida-based railroad had extracted more than 30% of its revenue from coal operations before 2012, but that percentage fell dramatically to only 15% in 2016 as the fossil fuel is being replaced by cheaper and cleaner-burning natural gas. CSX Corporation (NASDAQ:CSX)’s cargo volume declined by 9.3% year-over-year amid the challenging industry conditions, which are anticipated to persist through the end of the year. Fresh data shows large U.S. railroads saw cargo traffic decline by 8.3% in the second quarter. CSX shares are up by 9% thus far in 2016. Steve Cohen’s Point72 Asset Management was the owner of 4.48 million shares of CSX Corporation (NASDAQ:CSX) at the end of March.

Let’s head to the second page of this article where we’ll discuss three other transportation stocks favored by Skylands Capital.