Serious Money: Keep your eyes on UPS and FDX

I have owned both companies in the past and most recently I got back into UPS in mid-March, near its low at $44 per share. The following is the three-year chart for UPS. You will note the major dips in the last summer when fuel prices peaked, then again in October and March with the general market.



United Parcel may have its ups and downs but is a true blue chip stock with limited competition and impeccable balance sheet. "My pal Warren" has been keen on this stock for a while so Berkshire Hathaway (NYSE: BRK.B) has a stake in the company. I like it for its 3.38% dividend, and P/S of 1.09. I like it because of its steady revenue growth, about a 9% average over the last five years, and it's high ROE of 32. I like it a lot but I also want to own it cheaper. It is has been trading between $52 and $53 per share today.

Federal Express has been in the news this past year about it classifying its delivery truck drivers as independent contractors, and also about whether the company's employees might become unionized. FDX is resisting both, but like UPS I think fuel prices are a bigger issue. If FDX were to lose either of these battles it will not matter much in the long run as long as the fundamental character of its business does not take on burdens not associated with its competitors. UPS is employee owned, has a larger foot print and greater presence in ground shipping.

The following is the three year chart for FDX. It has followed the same path as UPS but at different price points.



FedEx has some interesting metrics from a value standpoint. The P/S is much lower than UPS at 0.53 and the P/B is very low, at 0.86. I was greatly surprised at this because UPS has a P/B closer to 7. It also has demonstrated higher five-year revenue growth at 11%. Both companies present values but right now, FDX has the appearance of being a deeper value. The dividend is meager at 0.78 % so if your looking for income UPS is superior. It is also trading today between $52 and $53 dollars a share.

The following chart compares the two companies over the last three years. FDX seems to be slightly less volatile for reasons I am not aware of. It also has dropped less in the last few months on a percentage basis.



As the economy improves expect both companies to improve with it. They should also benefit from less competition since DHL pulled out of North America.

One factor I am expecting to have a latent positive effect is the fuel situation. Even though both companies will be effected, I think it will be less than in the recent past because they have been preparing for this inevitability, and investors may not be giving them credit for their new efficiencies.

I do not think there is any hurry to get into these stocks because it is unlikely the economy will recover very rapidly, It would be wise to watch them and perhaps invest a portion of your capital over a period of months, or maybe the next three quarters.

Both will benefit from increased globalization and should be steady earners. These are not trading stocks, they are conservative buy and hold stocks -- even if that seems to be out of favor by many vocal prognosticators these days.

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 own shares of UPS.