Transportation Stocks To Watch

The SPDR S&P Transportation ETF (NYSEARCA:XTN) appreciated 1.4% during trading Monday, outperforming the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), which closed up 0.3%.

Railroad stocks like Norfolk Southern Corp. (NYSE:NSC), Canadian Pacific Railway Limited (USA) (NYSE:CP), and CSX Corporation (NYSE:CSX) closed in the green yesterday. Norfolk stock closed 3.3% up, Canadian Pacific closed 1.2% up, and CSX was 3.1% up.

The upward rally in railroad stocks is a result of activist investor Bill Ackman’s hint about Norfolk being the next merger target for Canadian Pacific. After talks about a merger between Canadian Pacific CSX ended amid regulatory concerns, Mr. Ackman indirectly named Norfolk as the new target. At the Invest for Kids conference in California last week, he stated Canadian Pacific was looking to merge with a competitor of CSX, a description that Norfolk fits perfectly.

Airline stocks Southwest Airlines Co (NYSE:LUV), American Airlines Group Inc (NYSE:AAL), and United Continental Holdings Inc (NYSE:UAL) closed in the green as well, after reporting better-than-expected air traffic demand for October.

Southwest reported a year-over-year (YoY) increase of 4.4% in its revenue passenger miles, a measure of demand for air travel, for October. Revenue passenger miles for the Dallas-based airline showed a quarter-over-quarter (QoQ) increase of 8.7%.

American Airlines’ October revenue passenger miles were 0.4% higher than those reported in the same quarter last year, a QoQ increase of 2.5%. Meanwhile, United Airlines had revenues passenger miles 4.4% greater than those in the same month last year, a QoQ increase of 8.7%.

With the recent Ebola outbreak in the US, investors and analysts feared the demand for air travel would go down. However, the October operational results have led to the emergence of positive sentiments toward airlines.