The Dow Jones Transportation (DJT) Average has given an annualized return of 150% since hitting YTD (year to date) bottom on March 9, 2009. Even the NASDAQ Transportation index (IXTR) has given a return in excess of 100% during the same period. It seems the transportation sector story is fast emerging. Of course, when the return period is changed to 1 year (a gain of 9.34%), 5 years (20.43%) and 10 years (41.4%), the gains seem less appealing. However, if we pick our 7 bull stocks carefully then we could be beating these indexes handsomely.

Our stock universe is limited to seven sub-sectors namely Transportation - Air Freight, Transportation – Airline, Transportation – Ship, Transportation – Rail, Transportation – Truck, Transportation – Services, and Transportation - Equip & Lease. Picking the top stock from each sub-sector would make our job much easier. However, we don't take the beaten path. We will do the stock capping based on the sub sector outlook.

Based on the National Employment Matrix from the Bureau of Labor Statistics, the transportation sector as a whole is projected to grow 11%, topped by motor-vehicle transportation at 13%, air transportation at 14%, and sea transportation at 19%. Hence, we will pick three stocks from sea transportation, two from air transportation, and one from motor-vehicle transportation and one from inter-modal transportation.

Shipping stocks

Stocks of dry bulk shipping companies, once the hardest hit industry within the transportation group, have recovered nicely from their lows and are down less than 3% compared to the 32.7% decline in March 2009, reflecting improvement in shipping rates and other favorable developments. The Baltic Dry Index (BDI) is up to 2,653 from its recent low of 663 on December 5, 2008, though still down precipitously from the record high achieved on May 20, 2008 of 11,793.

Moreover, many dry bulk shippers have been successful in negotiating waivers in financial covenants contained within loan agreements, thereby providing some much-needed breathing room to operate in this downturn. That said, dry bulk shippers are not out of the woods yet, and will need to see a sustained uptick in global trade patterns before normal operating trends can be achieved.

Overseas Shipholding Group (OSG) – vessel ownership appealing

Overseas Shipholding Group (OSG) is one of the world's largest international shippers of crude oil and refined petroleum products. As of June 30, 2009, OSG had an operating fleet of 112 international flag and U.S. flag vessels. Of the total, 50%, or 56 vessels, were owned.

OSG America L.P.