United Parcel Service isn't a 'back up the truck' play, but it is a suitable position for investors who can tolerate moderate risk. Here's why: One could make a strong case that United Parcel Service, Inc. (NYSE: UPS) deserves to trade at the low end of it valuation, at a p/e of 10 or 12, instead of the current 18, given weak demand, and a likely continued drop in package delivery volume in Q2 and Q3. But the view from here argues institutional investors aren't likely to take that stance.
In fact, only evidence confirming a continued, pronounced U.S. recession – with monthly job losses above 500,000 – will prevent mutual, hedge, and investment funds from continuing to add to holdings of UPS. And as they say on Wall Street, 'As institutional investors go, so goes the market.'
Other positives: likely share repurchases should be accretive, as well. The company has also frozen management salaries and suspended its 401k matching program to cut costs. The First Call FY 2009/FY 2010 EPS estimates for UPS are $2.77/$3.30.
Stock Analysis: United Parcel Service is a moderate-risk stock. Consider buying a 25% position in UPS now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your UPS position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $33.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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Reader Comments (Page 1 of 1)
4-08-2009 @ 12:13AM
TraderMom said...
If I were a deep value buyer, I would have bought it on its way down. I would not tell anyone to buy it after it has already moved from 38 to 50+. UPS is a very sluggish mover. A 12 dollar move is considered huge for UPS. It is either going to chop or drop. Do not touch it now.
http://www.momdaytrader.com/blog/
4-08-2009 @ 11:49AM
Kent said...
I found this article quite interesting about an unofficial economic indicator proffered from UPS financial performance in line with our current state of the economy. It makes sense. While thinking about this particular phenomenon over the last 24 hours, I also concluded we should also keep track of MCD's (McDonald's Corp.) trend-line in sales. I believe that, if their sales growth continues upward above their normal historical levels, it would indicate that our economy has not recovered yet. In a perverse way, I hope we see their sales going flat sometime soon.