Roadrunner Transportation Systems Is A Buy Amidst Nationwide Capacity Shortage

Roadrunner Transportation Systems, Inc. (RRTS) is a non-asset based transportation and logistics services provider offering a full suite of solutions, including customized and expedited less-than-truckload, truckload and intermodal brokerage, and domestic and international air. The Company utilizes a proprietary web enabled technology system and a third-party network of transportation providers to serve a diverse customer base in terms of end market focus and annual freight expenditures. Its third-party transportation providers consist of individuals or small teams that own or lease their own over-the-road transportation equipment and asset-based, over-the-road transportation companies. As a non-asset based transportation provider, the Company does not own any tractors or other power equipment used to transport its customers' freight. Roadrunner Transportation Systems, Inc. is headquartered in Cudahy, Wisconsin.

There are many old trader/investor maxims out there, and one of the oldest is known as "Dow Theory." With Dow Theory, one looks at the Dow Jones Transportation Average (DJTA) to see how the overall Dow Jones Industrial Average (DJIA) is going to perform in the near future. If the DJTA hits a high, the overall Dow will soon follow suit--and vice-versa.

This guideline essentially argues that one can use transportation stocks a leading indicator for economic activity and thus, market performance. Basically, we look to transports and if we see them doing well, we expect that the rest of the economy and the market will follow suit, since transports often show a booming economy before other indicators. So, when one sees a story in today's Wall Street Journal about trucking shortages for shippers across the US, one takes notice.

The article notes that many shippers are facing increased costs for trucks to handle their goods--if they can even find the space, and that some are limiting their shipping to all but the most critical components. The article notes that December was a near-record month for freight volume, and that in some markets the cargoes outnumbered the available trucks by a ratio of 10:1.

However, is this shortage really a leading indicator? The article also notes that new regulations may be to blame, as driver safety is now at the forefront. Firms are installing electronic monitoring devices to make sure drivers get the proper rest and can be alert whenever they are in their cabs. Enforcing regulations may be removing capacity from the road as drivers must now stop when they exceed hour limits.

When we look at our industry breakdown for trucking, we don't see a lot of BUY-rated companies. So it's hard to see if the industry is booming on the back of the shortages and increased rates--and, one would presume, profits. But, one of the BUY trucking firms we do have right now is Roadrunner.

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