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When oil prices were rising quarter after quarter through July of this year -- topping $147 per barrel -- it was very problematic for United Parcel Service (NYSE: UPS) to run its television commercials bragging they had the largest fleet of planes and trucks in the world.Fuel prices that hurt the economy have hurt UPS more. The stock is down from the high $80s a few years ago to the current lows closing Monday at $52.77. It is trading below its 2001 IPO price after averaging around $70 for most of its "public life."
Just about every business journal is coming out with its stock picks for 2009, and among them are many blue chip stocks. These include familiar names like General Electric (NYSE: GE) Chasing Value: Add General Electric to the list, Johnson and Johnson (NYSE: JNJ), Microsoft (NASDAQ: MSFT), and McDonald's (NYSE: MCD), to name a few.
While I was reading this weekend I saw a UPS ad and realized that nobody was directing investor attention to this fine company.
That got me thinking. UPS has a clean balance sheet, great cash flow and is AAA rated. The company has weathered the high fuel prices and reduced business. UPS itself has become a valuable barometer over the years to measure the state of the economy and I often check with our carrier about his business traffic. On Friday he said they were laying off 10% of the drivers but he would be above the cut.
The company is currently paying almost a 3.5% dividend yield and that does not seem to be in jeopardy. The following is a chart going back to the IPO.
Under normal circumstances the metrics for UPS would be poor: low profit margins, high P/E ratio, low ROE, ROA, ROIC -- all as a result of a dismal economy. But maybe this might be good news in some regards. Many companies have been reporting losses and would be happy to report slim profits.
United Parcel will improve when the economy does but maybe it will improve faster than the overall economy. For one thing, the collapse of fuel prices is helping its bottom line and it is helping it fast. We will find out how fast in the next quarterly report, but it will be big because it is one of the company's major expenses.
There is less competition now than there was last year. The poor economy has hurt competitors and many were not in a position to sustain themselves. One large competitor, DHL, pulled out of North America entirely. This left UPS a larger piece of the pie. Will DHL come back? Probably, but it will remain challenging and there will be no reason to turn to DHL unless it is willing undercut UPS pricing. That will be tough to do.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I owned shares of UPS until about six months ago. I am considering reacquiring it now.
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Reader Comments (Page 1 of 1)
12-29-2008 @ 5:11PM
Michael French said...
Mr. Liber,
My name is Michael French. I am with UPS corporate headquarters in Atlanta, Georgia. I came across your blog and would like to thank you for taking the time to recognize and write about UPS as a company worth investing in. As a shareholder in this company, I wholeheartedly agree.
I wanted to make sure that you are aware that no layoffs have been announced, and that makes the statement in your blog about a layoff of 10 percent of our drivers inaccurate.
Please feel free to reach out to me in the future. I am happy to assist you with any questions you have about UPS.
Regards,
Mike