Five Transportation Stocks Ready to Roll

Trains, trucks and ships might not seem like natural places to put your money when the daily headlines shout recession. After all, they are the engines of economic activity, moving everything from corn and coal to iPods and socks. But a handful of transportation companies are poised to ride out the domestic doldrums. After years of hard work to become more efficient, these companies are lean, mean and flexible enough to reduce costs when demand slips. The best-positioned have another weapon: pricing power. Companies like Burlington Northern and United Parcel Service benefit from limited competition and high barriers to entry. No one is going to build a new railroad or re-create a global shipping network overnight. And with railroads still operating near full capacity, it's easier to implement price increases — 6 percent last year alone. "If a shipper wants an extra train, it's going to cost them," says Longbow Research transportation analyst Lee Klaskow. No wonder long-term investors like Warren Buffett have been buying stocks such as Burlington Northern.

Even in a slowing economy, moving goods is a big business. Trucks and railroads combined bring in about $700 billion a year in revenue, and increasing world trade means that figure should continue to grow. As a group, transportation stocks typically hit the brakes before other industries, and this slowdown is no exception. Freight shipments started slowing in late 2006. The good news is that the sector often emerges from the doldrums before other companies. Jon Langenfeld, who covers transportation at Robert W. Baird, says these freight recessions typically last about six to eight quarters. If the pattern holds, this one could be nearing an end. Meanwhile, overseas economies are picking up the slack. The rest of the world still needs many of the goods produced here, and someone has to move them. Indeed, research firm Global Insights expects the value of traded goods to rise to $15 trillion this year, from $13 trillion in 2007.

To find transportation companies that can move portfolios as well as goods, we searched for firms that can ride out near-term bumpiness and go full steam ahead at the first signs of recovery. We then looked for those whose profits are expected to remain strong even in a downturn. As an added safety net, we stuck with companies that pay dividends, even if they are on the small side. That left us with five stocks that should keep your portfolio chugging along over the long term.