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TheStreet Open House

8 Stocks to Ride the Economic Revival

Stocks in this article: NSCUNPKSUCPFDXUPSBRK.BCSXCNW

(To add that UPS warns of a weak 4Q due to a pension accounting charge.)

BOSTON ( TheStreet) --Ben Franklin, founder of the U.S. Postal Service, now a $66 billion revenue business, had no notion what he was setting in motion.

But now it's listless, with a current reshuffling that's trying to save its long-standing service, mired in red pension ink and rising stamp costs.

Among the reasons for its slide is increased competition, for what had once been a virtual monopoly.

Given instant messages, emails, texts and tweets, the U.S. Postal Service's snail mail is a relatively obsolete way to communicate, but we still need letters and postcards to be delivered.

And one inkling that the transportation industry is on its way to a comeback is that the U.S. economy grew at its fastest pace in more than a year in the third quarter, the Commerce Department said Friday.

One encouraging sign was that consumers continued to step up spending, as more Americans got jobs, and their disposable incomes rose. Consumer spending, which accounts for more than two-thirds of demand in the economy, rose 2% in the fourth quarter, compared with 1.7% in the third and 0.7% in the second.

But you can't get too carried away with this, as the Federal Reserve has pledged to keep interest rates low through at least 2014, a sign the central bank doesn't think economic growth will be robust. So transportation demand is likely to be a slow-growth proposition.

As for the postal service, volumes have declined by more than 20% over the past five years, a decrease of about 40 billion pieces of mail, according to Standard & Poor's.

Who wins? UPS (UPS) and FedEx (FDX) are the small-package handlers seeing rising volume from Internet retailers that rely on them to ship their goods.

It's not a given for them. The Dow Jones Transportation Average, made up primarily of trucking, delivery and airline shares, is up 3.8% over the past 12 months, which is no rally given that the S&P 500 finished flat in 2011.

And the conglomeration of shipping companies, which include logistics and land transport companies, have seen a 20% three-year average annual return, according to Morningstar, and they should both jump once the economy rebounds.

S&P Capital IQ says that FedEx and UPS should be "the two big winners as the transportation of small packages evolves away from the post office."

FedEx has a "strong buy" rating, while UPS has a "buy" from Standard & Poor's stock analysts.

Even railroads, about as old-school as could be, are benefitting from the "cheaper-by-rail" business due to higher fuel costs. Investors have driven up their shares up an average of 36% over the past three years.

The wily Warren Buffett is in a great position, as a mid-continent carrier he owns will get a boost when the economy comes back. His Berkshire Hathaway (BRK.B), which bought railroad Burlington Northern Santa Fe in 2010 for $27 billion, is in great shape. That's a vote for the transportation industry and that should support investor views that transport is a good investment.

Here are a few stocks that could beat the postman as parcel and message carriers replace the bag carrier, including UPS and FedEx.

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