If the Dow Jones Transportation Average is anything to go by, the trucking industry hasn’t been a sector that has aroused much confidence in 2015. Year-to-date, the index is down -3.6%, a victim of constant gyration between a 9,200-point ceiling and a support line at 8,600 that is begging to be threatened. Werner Enterprises Inc. (NASDAQ:WERN) is hoping to change investors’ minds about the industry, or at least that’s what RBC Capital Markets believes. Their analysts recently upgraded Werner from “Sector Perform” to “Outperform,” indicative of potential upside for the transportation carrier.
Other analysts, such as Jason Seidl of Cowen and Company, have voiced their support of sector names. Although the technical challenges of the market have been acknowledged, — namely, the sideways trading — there are rational reasons to be bullish. Critical to the optimism is the strong U.S. dollar, which tends to reduce diesel costs and thereby offer a cheaper alternative to long-distance transport via railroad. In addition, Avondale Partners chief market strategist Donald Broughton noted that due to the mostly domestic business conducted by American transport carriers, they are insulated from international currency fluctuations, and therefore, less likely to suffer a trade-off from the effects of monetary policy. Tellingly, Mr. Broughton also recommends Werner as a sector stock pick.
But can an individual company from a market that has demonstrably shown itself to be choppy in the best of circumstances be trusted? Statistically, the answer is yes, and a resounding one at that. Over the past 90 days, Werner shares’ average performance is 3.02%. Using this number as a control, and based upon data collected since the company’s initial public offering, there is a high degree of probability — over 72% — that over the next three months, shares will be trading higher.
The flip-side to the favorable odds — at least from a bullish investors’ perspective — is that the average returns aren’t particularly great: roughly 11%. This means that by the second week of July, WERN shares will likely trade hands at around $34.88. However, the 27.50% chance of losing in the trade is associated with an average loss of only -5.38%. Essentially, the reward is twice as much as the risk, and the probability of winning is 2.6-times greater than losing.
Perhaps the strongest sticking point about Werner shares is its lack of volume and “sex appeal.” Although it provides high odds for success, the average returns are somewhat small. For those seeking greater leverage through options contracts, the available calls and puts are extremely limited. For example, the September 18 $35 call options may have a chance of being in the money, given the probability of a $34.88 valuation by July. But the next lowest call is the $30 strike, which carries a hefty premium.
But for those that could do away with market drama, Werner likely holds the ticket to longer term profitability.