Where there is a problem, we can find major profits in the solution. And finding profitable solutions is what the competitive market economy does best.
The broken supply chain is a massive problem.
You can see it in rising prices, longer delivery times, empty car lots and depleted store shelves.
Every link in the supply chain, from the factories in Asia to the last-mile delivery in Kansas, is under pressure. But the biggest bottlenecks are in transportation, and we see that in the pricing.
As an example, the cost to transport a container from China to the U.S. West Coast is up about 120% in the past 12 months.
So, with that as background, let’s take a look at the SPDR S&P Transportation ETF (NYSE: XTN).
I like to buy shares of individual companies.
But you take a broader approach with an exchange-traded fund (ETF) — a basket of stocks. And that makes plenty of sense here.
The transportation sector is benefiting from higher costs.
But let’s look under the hood to see what transportation stocks XTN owns.
ETF X-Ray of XTN
Our approach in my premium stock research service Green Zone Fortunes is quantitative. We put every stock we recommend through a rigorous six-factor rating system. My proprietary Green Zone Ratings system then assigns a rating of zero to 100, making it easier to spot the best of the best stocks.
So, let’s do an ETF X-ray to see how the XTN’s holdings stand up in my system.
Here are the top 20 stocks in XTN by weight (percent of total portfolio):
These stocks make up about 50% of the ETF’s market cap.
I’d avoid some of these companies — ride-hailing service Uber Technologies Inc. (Nasdaq: UBER) rates a 6, which makes it “High-Risk” in my Green Zone Ratings system.
But as you can see, most of the stocks in the table above rate above 60, making them “Bullish” in our system. Several even rate above 80, making them “Strong Bullish.” Based on our historical research, Strong Bullish stocks should beat the market by three times over the following 12 months.
So, in buying shares of XTN, you get a basket of highly-rated transportation stocks that should enjoy several strong quarters as the supply-chain logjam works itself out.
X-Ray Reveals Top Transportation Stock
Let’s pick one off the top. ArcBest Corp. (Nasdaq: ARCB) is the second-largest position in XTN’s portfolio, with an allocation of about 3%. It also rates near perfect in Green Zone Ratings at 99 out of 100.
ArcBest, a trucking and logistics company based in Arkansas, rates well across five of six factors. (The lone exception is size, in which ArcBest rates in the middle of the pack.)
This is an inexpensive, high-quality and low-volatility transportation stock. ARCB’s underlying business exhibits strong growth that pushes the stock price higher. There’s nothing to dislike here.
And XTN is full of highly-rated stocks like these.
Find More Hidden Stock Gems
Let’s dig even deeper and look at the highest-rated stocks within XTN:
You can see the overlap between stocks that rate well and hold a larger position within XTN’s portfolio: ArcBest, Saia Inc. (Nasdaq: SAIA) and Old Dominion Freight Lines (Nasdaq: ODFL), just to name a few.
But some companies on this second list are underweighted in XTN. They fly under the radar of most investors.
This is where I focus my research in Green Zone Fortunes.
This month, I recommended a new stock for the Green Zone Fortunes model portfolio. It’s a high-quality stock within XTN that rates in the top 5% of 8,000 stocks within our universe on growth, quality and value … it rates pretty darn well across all of our metrics.
It‘s also in a prime position to help fix the supply chain mess.
And you can find out more about this company by joining Green Zone Fortunes today.
For less than $4 per month, you’ll receive my highest-conviction stock recommendations, along with guidance on the best times to buy and sell. These are the stocks within today’s mega trends that I believe will crush the market over the next six months to three years.
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To good profits,
Chief Investment Strategist