Transports Boom — and a New Option Recommendation

It was a solid week for the mainstream U.S. indexes, with the Dow Jones up 1.72% and the S&P 500 jumping 1.25%, both hitting record highs. The technology-heavy NASDAQ trailed as it ended the week a mere 0.27% higher. Global markets continued to be under pressure, and the MCSI Emerging Markets Index fell 0.75%.

Big gainers in your Bull Market Alert portfolio included Trinity Industries (TRN), which jumped 6.14%, and Gilead Sciences Inc. (GILD), which added 2.22%. Trinity Industries (TRN) also hit a new 52-week high.

With Trinity back on the upward track this past week, I am recommending that you buy the January $52.50 calls (TRN150117C00052500), which expire Jan. 17.

Two positions, Visa Inc. (V) and Vipshop Holdings Limited (VIPS), moved back above their 50-day moving averages and are back to a BUY.

This week’s Bull Market Alert recommendation is the iShares Dow Jones Transportation Average Fund (IYT). Transports are often considered to be a barometer of broad economic health, as they involve the movement of freight and passengers through different modes such as rail, trucks, ship and air.

Within IYT, the railroad industry makes up nearly 25% of the portfolio. Delivery services, trucking and airlines also get double-digit percentage allocation in the fund with a share of 21.4%, 19.5% and 14.4%, respectively.

You already know that the Dow Jones Industrial Average hit a new high last week. But you probably don’t know that the Dow Transports index has outperformed the Dow Jones Industrials by almost 3 to 1 so far in 2014. The Dow Transports index is up nearly 14.83% year to date (YTD), which is more than 10 percentage points more than the Dow Industrial’s minimal YTD gain of 4.66%.

Here’s why I expect this outperformance to continue between now and the rest of the year.

First, the Federal Reserve has put off raising interest rates for the near future. As a result, the cost of capital, especially for corporations, will remain extremely low. In addition, corporate balance sheets remain in excellent condition with strong cash positions.

Second, the widespread weakness in oil prices will likely generate surprisingly good corporate financial results in the transport sector. Railroads and airlines consume vast amounts of fuel, and lower oil prices should boost earnings substantially.

So buy the iShares Dow Jones Transportation Average Fund (IYT) at market today and place your stop at $148.00.

If you want to play the options, I recommend the January $155 calls (IYT150117C00155000), which expire Jan. 17.

Portfolio Update

Visa Inc. (V) gained 1.03% last week. Sterne Agee initiated coverage of Visa last week, setting a “Buy” rating and a $265.00 price target. This represents a potential 22.5% increase from last Friday’s close. The firm cited Visa’s excellent positioning in the continuing global shift to electronic forms of payment as a primary driver. From a technical standpoint, Visa’s current share price is just above the 50-day and 200-day moving averages (MA), giving V excellent support for an upwards move. V is a BUY.

Flextronics International (FLEX) dipped 1.59% last week. FLEX formally becomes a member of the NASDAQ Q-50 Index today following NASDAQ’s quarterly re-ranking. This index tracks the performance of securities that are next-in-line for inclusion in the NASDAQ-100 Index. FLEX is a BUY.

Vipshop Holdings Limited (VIPS) gained 0.85%. All eyes were on the drama of the largest U.S. initial public offering (IPO) in history last week. Chinese online giant Alibaba’s (BABA) IPO broke records and managed to push many other Chinese e-commerce sector names higher along with it, including VIPS. VIPS also moved back above its 50-day MA to become a BUY.

United Rentals, Inc. (URI) closed the week flat despite officially joining the S&P 500 last Friday. URI has typically traded roughly one million shares on a daily basis. However, volume spiked to a record 16 million shares last Friday as index funds that mirror the S&P 500 clamored for URI’s shares. URI price action may get mighty interesting over the next few weeks. URI is a BUY.

Trinity Industries (TRN) jumped 6.14% over the past five trading days, spiking to a new 52-week high. Trinity competitor Greenbrier announced last week that it had received new orders worth $1.37 billion since June. This data pushed TRN up along with Greenbrier, as both companies will benefit by being the sole players in a high-demand sector. Trinity’s profit forecast calls for a 77% jump this year alone. TRN is a BUY.

Gilead Sciences Inc. (GILD) added 2.22% for its second week in the Bull Market Alert portfolio. Although technically still suffering from a news-related dip, GILD gained last week on news that Citigroup increased its price target on GILD from $111.00 to $139.00. This represents a whopping potential 31% jump higher from Friday’s close. GILD’s dip may be over as it appears to be on the move back higher to challenge its recent 52-week high. GILD is a BUY.