I just got back from shipping a package… and, boy, was it expensive.
We’re in the most profitable time of the year for shipping companies… especially FedEx and UPS.
But there are stark differences between these two shipping giants…
One of these logistics powerhouses offers a juicy 5.2% dividend yield and is on track to join an elite group of stocks.
The other?
Despite a seemingly impressive 19% gain this year, the charts are telling me to stay away.
I’m making a contrarian call that might surprise you, but the numbers don’t lie.
Find out which shipping stock could deliver returns to your portfolio in my latest Buy This, Not That video.
Click on the thumbnail to dive in.
TRANSCRIPT
Hey, everybody. Shah Gilani here with your weekly BTNT, as in Buy This, Not That.
Today, I’m going to talk about the major shipping companies… because it’s the holidays.
Everybody’s shipping stuff. I just came back from one of the shipping stores myself. (By the way, it’s not cheap. I don’t know that it ever was, but it’s certainly getting more expensive every day.)
Who are the two 800-pound gorillas?
United Parcel Service (UPS) and FedEx (FDX).
I’m going to start with FedEx.
FedEx is probably much better known for its air deliveries.
It started pioneering overnight delivery in 1971. It’s best known and I think relied on for time-sensitive deliveries. At least that’s what I rely on it for. I rely on FedEx when I have something that absolutely has to be there.
I use FedEx, and, yes, you pay for it.
The stock has done pretty well, up 19% this year, but it’s been a rocky ride for FedEx. Nonetheless, the stock is up. In a bull market, that’s not surprising. That’s pretty good.
Nineteen percent on the year from its lows of the year. Not so bad. Pays a very small dividend, less than 2%.
It had a $68.5 billion market cap. Revenues of $88 billion a year over the trailing 12 months. Profit margin is 4.73%. It has a pretty good balance sheet.
Everything about FedEx is pretty good. Again, it’s had a 19%-plus move this year higher. That’s pretty good.
So let’s compare it to UPS.
United Parcel Service is bigger in terms of market cap at about $107 billion. It is slightly bigger in terms of revenues, about a little over $90 billion in the trailing 12 month revenues. Its profit margin is about 50% bigger at 6.25%.
It has a really good balance sheet. It has really good earnings. The third quarter earnings were pretty good. FedEx, not as good, but OK. But for UPS, we really like its third quarter earnings.
I’m going to have to say it hit it out of the park. Revenues were up 5.6% in an otherwise slow market for delivery.
Operating profit for the third quarter at $974 million versus a year prior $664 million. So the numbers are really good.
What do they both look like on a chart? So let’s go and see if we can pull up a chart here for you. Because I want to explain what I’m looking at.
I’m going to start with FedEx.
This is what I’m talking about. A lot of choppiness here. You got these huge gaps up here, huge gaps up, and then you got a huge gap down. It’s had an up move from the bottom down here, but lo and behold, it’s way below the high, which happened back in July.
So the stock has really come down quite a bit. And then again, you get these kind of moves here, which scare me. I’m not a big fan of the 50-day heading back down to maybe cross over the 200-day.
So I’m going to surprise you and say FedEx being up about 19% on the year is NOT a buy.
It’s a bit of a contrarian play. Here’s what I mean…
Looking at UPS’s chart, and you might say, “what?” Yes. So is it a contrarian play? Yes. Is it a contrarian play on account of the fact that the chart looks terrible? Am I looking for, hoping for, some consolidation down here to make a double bottom and move higher? Yes.
But there’s a little bit more to the story.
Besides the contrarian looking for a bounce in a market that is getting tighter and tougher for both FedEx and UPS, there is a silver lining with UPS.
It’s got a very handsome dividend yield. Its dividend yield is 5.19%. We’ll call 5.2% down here… 5.2% at this price point.
It’s been paying a dividend for something like 22 years and raising it consecutively and consistently.
Guess what? In a couple more years, and the stock will be considered a dividend aristocrat. That’s a very tiny universe of U.S.-listed stocks that pay a regular wonderful dividend and increase it on a regular basis, and don’t miss.
United Parcel Service is about to join that club. It needs a couple years, but for 22 years, it’s done a remarkable job raising its dividend.
The 5.2% dividend yield is why UPS is a BUY.
I’ll catch you guys next week. Cheers.
— Shah Gilani
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Source: Total Wealth
