Thursday’s ETF To Watch: Transportation Fund (IYT)

by on December 16, 2010 | ETFs Mentioned:

As we reach the middle of December, equities have settled down from their surging trend at the beginning of the month. While major indexes hit highs for the year, many investors were bullish that the end of 2010 would bring promising results to stocks. But the last few days have been all but encouraging, as stocks have struggled to do more than break even. Yesterday saw markets sink into the red upon news that the greenback had regained some of its strength thanks to continued troubles in the highly-indebted euro zone. Now that the Bush-era tax cuts have been extended beyond 2010, investors anxiously await how this news will impact trading in the coming days. While markets have been stuck in a multi-day horizontal rut, we look to data releases to help push equities one way or the other before the Christmas break [see Ten Commandments Of ETF Investing].

Today, FedEx Corporation will release its earnings from its most recent fiscal quarter. FedEx, headquartered in Memphis, Tennessee, is one the largest delivery and transportation companies in the world and is always an important company for market sentiment. Although much smaller than its arch-rival UPS, the company has made a name for itself in recent years by going after its chief competitor by moving into new industries such as with the Kinko’s acquisition and even accusing UPS of receiving a bailout from the government. The firm now pulls in almost $38 billion in annual revenues, and has over 280,000 employees [see also ETF Plays To Invest Like Buffett, Fisher, Paulson].

Analysts predict the firm will bring in EPS of $1.31 with revenues nearing the $10 billion mark. Last quarter saw FedEx miss their earnings by just one cent, and the company hit their three previous estimates, so hopefully they will get back on track and once again deliver strong results. If the company hits its revenue marks, it will mean a 13% rate of growth from this point last year, showing that business has been picking up as our economy continues to gain traction [see also our Stock Lookup Tool].

In light of this earnings announcement, the iShares Dow Jones Transportation Average Index Fund (IYT) should be active in trading today. IYT measures the performance of the transportation sector of the U.S. market. FedEx comes in as the largest holding of this fund 10.4%, while Union Pacific Corporation comes in a close second with a 10.2% weighting. This ETF has just 20 securities, all of which span across companies of all market cap sizes. 2010 has been a strong year for IYT, as it has gained 23% while paying out a dividend of 1.1%. If FedEx hits their marks today, look for this fund to have a strong day, but being such a crucial component to IYT, a negative report from FedEx could send push this ETF sharply lower and erase much of December’s gains in the sector.

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Disclosure: No positions at time of writing.