The second-quarter 2015 earnings season is on its last lap. Sadly, revenue weakness has been witnessed across the board. A stronger dollar has turned out to be the main culprit responsible for the overall dismal season so far. Most American multinationals staggered with respect to revenue expectations in the quarter as profits continued to be thwarted by adverse currency movements.

The transportation sector was no exception to the trend. With all the S&P 500 members in the transportation space having already reported their second-quarter 2015 earnings, the aggregate earnings beat ratio is 61.5% (data as of Aug 5). Revenue beat ratio is alarmingly low at a measly 7.7%. Average earnings growth is 9.6% while year-over-year top-line growth has treaded into the negative territory and stands at -1.7% (read more:Zacks Earning Trends report).

Oil Prices Still Weak: A Major Catalyst

The transportation sector is highly diversified in nature and comprises players from multiple fields such as airline companies, truckers, shipping stocks and railroads. The sector has benefited immensely from the weakness in oil prices since oil costs form one of the major input costs for any transportation company.

Oil prices have fluctuated wildly over the past few months. Currently, prices are hovering around the $46 per barrel mark. Although oil prices are presently trending above the 6-year low of under $44/barrel touched in March 2015, they are nowhere near the highs observed in the first half of 2014. Major airline companies like Delta Air Lines (DAL) and American Airlines Group (AAL) have posted better-than-expected earnings in the second quarter of 2015, aided by low fuel costs. Going ahead, oil prices are expected to remain weak through the rest of the year. However, revenue growth has been sluggish to say the least.
 
Coal Woes Weigh on Railroads
 
As in the first quarter of 2015, weak domestic coal shipments hurt the second-quarter outcome of major railroad operators like Kansas City Southern (KSU). Moreover, adverse foreign currency movements, owing to the strengthening of the U.S. dollar, lower fuel surcharges received from customers due to declining fuel costs and sluggish carload growth from the energy sector hurt railroad stocks further.
 
Shipping Stocks to the Rescue?
 
With the airline industry engulfed in a series of controversies (ongoing probes and capacity concerns, to name a few) and railroads suffering under the weight of coal-related headwinds, stocks in both these industries are having a hard time. So, it might be the right time for investors interested in the transportation space to consider shipping stocks instead.
 
Shipping companies are also enjoying the fruits of lower oil prices. The slump in crude is expected to significantly reduce costs of bunker fuel prices. Moreover, tankers are also benefiting immensely from soft oil prices. By the end of last year, earnings of very large crude carriers were close to the level of $100,000 a day. Their average rates through 2014 were also the best in nearly four years. Weak oil prices will continue to boost demand for tankers, which in turn, should result in higher rates for shipping companies. The rising Baltic Dry Index this year is a major positive for the dry bulk shipping industry.

How to Pick the Outperformers?
 
With a wide range of stocks thronging the transportation space, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver better-than-expected earnings. Here is where our proprietary methodology shows its mettle. It advises investors to look for stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Zacks Earnings ESP.
 
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
 
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. An earnings beat more often than not boosts investor confidence in a stock, which translates into rapid price appreciation.
 
3 Shipping Champions
 
With shipping stocks showing great promise in the transportation space, we have applied the above methodology to shortlist three shipping stocks that are expected to report better-than-expected earnings in their upcoming releases.
 
Frontline Ltd. (FRO - Snapshot Report), based in Hamilton, Bermuda, is a provider of seaborne transportation of crude oil and oil products. This Zacks Rank #2 stock currently has an earnings ESP of +14.29%. The Zacks Consensus Estimate for second-quarter 2015 earnings is pegged at 21 cents. The company is expected to report its second-quarter results on Aug 27.
 
StealthGas, Inc. (GASS - Snapshot Report) and its subsidiaries offer transportation services to producers and users of liquefied petroleum gas globally. Additionally, StealthGas transports crude oil as well as a variety of petroleum products such as butane. It is also a carrier of edible oils and chemicals.
 
StealthGas based in Athens, Greece, carries a Zacks Rank #3 (Hold) and has an earnings ESP of +9.09%. The Zacks Consensus Estimate for second-quarter 2015 earnings is pegged at 11 cents. The company is expected to report its second-quarter results on Aug 27.
 
Navios Maritime Acquisition Corporation (NNA - Snapshot Report) is a shipping company based in Monte Carlo, Monaco. The stock carries a Zacks Rank #2 and has an earnings ESP of +7.69%.
 
The Zacks Consensus Estimate for second-quarter 2015 earnings is pegged at 13 cents. The company is expected to report its second-quarter results on Aug 18.
 
The Bottom line
 
With the shipping industry showing bright prospects, it might be a good idea for investors to add the above stocks to their portfolios. These stocks, by virtue of their favorable Zacks Rank and positive earnings ESP, are likely to come out with flying colors this earnings season. As an earnings beat is usually followed by significant stock price appreciation, these three shipping stocks adorning your portfolio could well prove to be a winning strategy.