Playing the Rally in Transport Stocks

After a disastrous 2011 which saw a financial implosion in Europe and an economic downturn worldwide, risk assets have rebounded strongly so far in 2012, pushing the S&P 500 index to a five-month high. But as we pointed out earlier this week, new trends are emerging.

Also See

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Charles Dow's original stock index wasn't the Dow Jones Industrial Average, but the Transportation Index, first calculated in 1884 as a leading harbinger of the economy. In today's often erratic market, transport stocks have been quiet leaders: The Dow Jones Transportation Average, made up primarily of trucking, delivery and airline shares, rests only 7% off its all-time-high reached last spring, closer than either the Dow Jones Industrial (down 12%) or Utility average (down 18%). Trucking stocks like J.B. Hunt Transport (JBHT), as well as rail operators like Kansas City Southern (KSU), Union Pacific (UNP) and Norfolk Southern (NSC), have been notably strong.

What Doesn't Sink Could Sail:

Guggenheim Shipping ETF (SEA) 1 year

For those investors with dividends on the brain, one way to play might be via The Guggenheim Shipping ETF (SEA), an under-the-radar screen basket of shipping stocks, including 70% domiciled outside the U.S.

At first glance, it might seem like a suicide mission. With the exception of a shortlist of names like Kirby (KEX), Textainer Group (TGH) and Rand Logistics (RLOG), shipping stocks were pummeled in 2011 -- so much that, as we pointed out a few months back, many trade below book value, or the replacement cost of the assets themselves. The Guggenheim fund's holdings trade at a price/earnings ratio of seven and a price/book value of 0.6, meaning you're technically buying one dollar worth of assets for only 60 cents.

And while I don't advocate buying any investment simply to receive a dividend, encouraging price action in stocks like Seaspan Corp. (SSW), Safe Bulkers Inc. (SB) and Nippon Yusen (NPNYY) suggests a tradable bottom could be in place. At current prices, the fund is yielding you nearly 6.5% to wait as the herd realizes ships are, in fact, transportation stocks, too.

After suffering losses in 2011, it would be easy to brush off shippers with the old saying that "even a stopped watch is right twice a day." Yet when it comes to the markets, timing is everything. With transportation shares rallying and prices still historically depressed, now might be that time.

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC At the time of writing, Hoenig's fund held positions in many of the securities mentioned.