2 contrarian transportation plays

Tech expert finds opportunity in rails and airlines.

By TheStockAdvisors Apr 15, 2013 10:31AM

Railroad Crossing with Train Edmond Van Hoorick Photodisc Getty ImagesBy Bernie Schaeffer, Schaeffer's Investment Research


Our stock picks are based on a proprietary strategy known as "expectational analysis" which combines fundamental, technical and contrarian-based sentiment metrics.


Based on this approach, I initiated a long position in two stocks in the recently-strong transportation sector: Union Pacific Corp. (UNP) and United Continental Holdings (UAL).


Union Pacific has been an outperformer, posting a year-to-date gain of 11% and a 52 week return of 32%. Despite this outperformance, and the continued strength in the transportation sector, skepticism toward UNP remains.


The Schaeffer's put/call open interest ratio, which measures the front three months of open interest for UNP, currently stands at 1.78.


This ratio is in the 87th percentile of all ratios within the last 52 weeks, and indicates a high number of bearish bets toward the equity.


Short interest, as a percentage of the stock's float, has also increased over 44% in the past month.


Finally, while there are currently 17 buy ratings, eight analysts maintain a "hold" rating. Any future strength from UNP could lead to upgrades, thus driving the shares higher.


Meanwhile, airlines have been very strong and United Continental Holdings is certainly no exception, and has posted a year-to-date gain of 28%.


Short interest, as a percentage of the stock's float, is over 7%. Additionally, the Schaeffer's put/call open interest ratio currently stands at 1.85.


This heavy bias of puts could lead to an unwinding of these bearish bets, which could then act as a tailwind toward the equity.


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