Despite mixed news on employment that left the Dow Jones and S&P 500 basically flat for the second day this week, transportation and heavy equipment stocks were down sharply on Thursday. Investors were reacting to evidence that freight volumes will be lower than expected this quarter, as well as a report from the Federal Reserve Bank of Philadelphia that manufacturing in that region is down.
Railroad operator Norfolk Southern
Weakening demand for coal is a structural problem for the railroad industry, as cheap, clean natural gas becomes the energy source of choice for new power plants. Investors and analysts expect that slack coal shipments will hurt the entire industry, and UBS downgraded a spate of railroads, including CSX Corporation
Norfolk Southern and CSX lead the industry in terms of revenue derived from coal shipments, at around 30% each. Both have strong exposure to dirty Appalachian coal that is increasingly falling out of favor with regulators and power plants. Railroads like Canadian Pacific
Not too sunny in Philadelphia
A report from the Federal Reserve Bank of Philadelphia showed the region's manufacturing base has shrunk for a fifth consecutive month. The Philadelphia branch is the nation's second to release this kind of regional data, and the New York Fed released similarly gloomy numbers earlier this week. This points to a national trend of declining manufacturing activity, which has led to sharp declines in heavy equipment manufacturers.
Natural gas engines are becoming popular in construction equipment, thanks to the price difference between cheap natural gas and other fuels, and that's returned big gains for natural gas engine designer Westport Innovations
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Daniel Ferry owns shares of Westport Innovations. The Motley Fool owns shares of Westport Innovations. Motley Fool newsletter services have recommended buying shares of Westport Innovations. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.