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Consider tracking the economic recovery with UPS

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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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Last updated: November 22, 2009: 04:38 AM

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