Transports see best January in six years, but traders hedge for the worst

Transports are delivering solid gains so far this month.

The IYT transportation ETF is tracking for its best January since 2013 with stocks like Avis Budget, Union Pacific and JetBlue moving higher.

However, options traders are hedging for the worst.

Stacey Gilbert, head of derivative strategy at Susquehanna, said that while she does not anticipate a recession, activity in the options market suggests investors are protecting against any possible economic downturn this year.

"Your railroad stocks certainly could have 30 to 40 percent downside if there were a recession – we're not seeing signs that's what is coming," Gilbert told CNBC's "Trading Nation" on Wednesday. "Trucking and logistics names probably you could be looking at 20 percent downside — again, that's not what's there but we think that's what some of the flow has been to protect against."

A drop of at least 30 percent in the railroad stocks would take the S&P industry down to levels not seen since the beginning of 2017. A 20 percent decline in the air freight and logistics industry would bring it to late-2013 lows.

For the long term, Gilbert said three names have sparked Susquehanna's interest – freight company C.H. Robinson, railroad stock Union Pacific, and airline Delta. Susquehanna analysts have buy ratings on all three of those stocks.

"We definitely think that there are names in transports. You can't own the basket, you've got to pick your favorites and we do have some that are out there," said Gilbert.

Erin Gibbs, portfolio manager at S&P Global, agrees that investors should not take the group as a whole, but rather pick out the outperformers.

"When you drill into it, the real highlight and what's driving a lot of this is the airlines so stocks like your Delta, Alaska Airlines," Gibbs said Wednesday on "Trading Nation."

The gap in earnings growth estimates for the group will further split their performances through the rest of the year, Gibbs said. Freight and logistics companies, for example, are expected to post 2019 earnings growth of 3.4 percent, the smallest increase of the group.

"Airlines have the growth of about twice the group as a whole and that's really your strong suit so I'd say focus on your airlines," added Gibbs.

United Continental and Delta both posted better-than-expected earnings earlier this week for their fourth quarters. United also gave upbeat guidance, though Delta's profit forecasts fell short.

Disclosure: Erin Gibbs does not personally own shares of Delta and Alaska Airlines but S&P Global does.


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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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