A higher number of Americans are gearing up for the summer travel season this year encouraged by accelerated job gains, moderate wage growth, and cheap fuel that will lead to more trips through road and air. With just a few days left for the sunny season, the frenzy for trips during the holidays is really more this time than in many years.

In fact, the latest survey from GasBuddy.com shows that drivers are expected to pay the lowest gasoline price since 2005. The average national price of gasoline is $2.23 per gallon currently, down 50 cents per gallon from last year. As a result, GasBuddy.com expects more than 75% of the Americans to travel this summer, up 2.2% from last year. Of this 79% will be traveling by car (read: Oil Rally Likely to Continue: ETFs & Stocks to Watch).

Another report from the U.S. airlines group, Airlines for America (A4A), shows that air travel is expected to reach an all-time high this summer (June–August), though travelers could face longer airport security lines. About 231 million passengers (2.51 million per day) would fly over the three-month period, up 4% from last year. Out of these, 30.5 million travelers (331,000 per day) will board international flights.

In order to accommodate an increased number of passengers, the U.S. airlines will likely add new flights and increase the number of seats. A4A expects airlines to offer 109,400 more seats compared to last summer, bringing the total to 2.78 million seats a day.

Huge travel demand should boost revenues and profitability for the airlines and railroads, thereby leading to higher share prices. Investors’ shouldn’t miss this opportunity and could tap this trend through ETFs and stocks that stand to profit big time from the upbeat summer travel trend.

How to Play with ETFs?

Below, we have highlighted three ETFs that belong to the transportation world and could see immense upside in the coming months, although a couple of them have a Zacks ETF Rank of 4 or ‘Sell’ rating.
 
iShares Dow Jones Transportation Average Fund (IYT - ETF report) 
 
The ETF provides exposure to the broad transportation sector by tracking the Dow Jones Transportation Average Index. The fund holds a small basket of 20 stocks with heavy concentration and dominance in the top 10 holdings. Air freight & logistics takes the top spot at 30.4% while railroads, airlines and trucking round off the next three spots with a double-digit allocation each. The fund has accumulated $505.2 million in its asset base while sees a good trading volume of around 358,000 shares a day. It charges 45 bps in fees and expenses (read:Burst of Earnings Surprises Fails to Drive Transport ETFs).
 
SPDR S&P Transportation ETF (XTN - ETF report)

This fund follows the S&P Transportation Select Industry Index. Holding 47 stocks in its basket with AUM of $190.8 million, it is well spread out across various components with none holding more than 4.90% of assets. About 30% of the portfolio is dominated by trucking while airlines takes one-fourth share. Airfreight & logistics, and railroads also make up for a double-digit allocation each. The fund charges 35 bps in fees per year from investors and trades in a light volume of nearly 65,000 shares a day.
 
U.S. Global Jets ETF (JETS - ETF report)
 
This fund provides exposure to the global airline industry, including airline operators and manufacturers from all over the world, by tracking the U.S. Global Jets Index. In total, the product holds 33 securities that are heavily concentrated on the top four firms with a double-digit allocation each. Other firms hold less than 4.8% share. The fund has gathered $51.9 million in its asset base while sees moderate trading volume of nearly 42,000 shares a day. It charges investors 60 bps in annual fees.
 
How to Play with Stocks?
 
Using our Zacks Stock Screener, we have chosen the stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a VGM Style Score of ‘A’ or ‘B’ from the railroad and airline industry. The combination of these two offers the best upside potential.
 
Southwest Airlines Co. (LUV - Analyst Report)
 
Based in Dallas, Texas, Southwest Airlines is a major domestic airline that provides primarily short haul, high-frequency, point-to-point, low-fare service. It has an above-industry earnings and revenue growth rate of 20.01% and 4.78%, respectively, for this year. The PE ratio of 9.95 and PEG ratio of 0.70 reflects that the company is a solid value play at the current levels. LUV delivered average positive earnings surprise of 1.73% over the past four quarters. The stock has a Zacks Rank #3 with a VGM Style Score of A.
 
Norfolk Southern Corporation (NSC - Analyst Report)
 
Based in Norfolk, Virginia, Norfolk Southern is engaged in the rail transportation of raw materials, intermediate products, and finished goods. Its earnings are expected to grow at a rate of 10.52% for this year, much higher than the industry average of 2.07%. The P/E ratio of 15.23 and PEG ratio of 1.40 are well below the industry averages of 15.78 and 1.75, respectively, suggesting that the stock is a bargain hunt. However, revenues are expected to decline 3.19% this year. The stock delivered a positive earnings surprise in two of the past four quarters with an average of 9.36%. The stock has a Zacks Rank #3 with a VGM Style Score of A (see: all the Industrial ETFs here).
 
Delta Air Lines Inc. (DAL - Analyst Report)
 
Based in Atlanta, Georgia, Delta Air Lines is one of the world’s largest global airlines that provides scheduled air transportation for passengers and cargo in the United States and internationally. The company has a robust earnings growth rate of 41.32% for this year versus the industry average of 19.51% and delivered a positive earnings surprise of 1.84% on average in the three of the past four quarters. The stock is extremely cheap at the current levels with P/E ratio of 6.68 and PEG ratio of 0.39, which are well below the industry averages of 8.36 and 0.56, respectively. However, revenue is expected to see a modest decline of 0.34% this year. The stock has a Zacks Rank #3 with a VGM Style Score of A.