Swapping CSX for UPS

For transporters, the cost of gas will be a 'driving' force in future profits and the ability to transport more commodities and less retail products will be beneficial. For that fact, we have decided to swap shares in UPS for a bigger focus on CSX. Both were favorites of the NetPayout Yield Portfolio for decent dividends and a history of buybacks.

Unfortunately for UPS whether public perception or reality, the cost of fuel will likely continue to hinder the amount of products shipped going forward. Even if it doesn't, its likely to hold the price of the stock down and competition with FedEx (FDX) and USPS is likely to hold down profit growth regardless. Not to mention that legal documents that used to be delivered via Express services will likely move to a sort of digital format reducing the need for UPS services because it can be done cheaper and is more economical and even greener.

Fortunately for CSX, the increasing cost of gas and likelihood that it will stay higher increases demand for the cheapest shipping method and most fuel efficient. Also, CSX greatly benefits from the demand for commodities such as coal, fertilizers, and ethanol. These goods can't exactly be shipped via a digital format. Railroads also face less competition and pricing power as new rails are almost impossible to get built.

In the end, its just a call that railroads have a better mix of products to ship and less costs from fuel. Either way, both CSX and UPS will move with the ultimate growth of the world markets, but we think CSX will move more.

Disclosure: Author owns CSX

Comments

[BlueOkie:]

Let's hope CSX stays out of the hotel business! UPS preference for LGBT caused me to sell the stock.

Jul 01 08:04 AM

[pocono:]

WHAT A DUMB REASON TO SELL A STOCK

Jul 01 08:50 AM

[DudeKabob:]

Isn't the headline of this article backwards? It's misleading, at any rate. Who edits this stuff, anyway?

Also, Pocono, I think "ignorant" would be a more appropriate word than "dumb."

On Jul 01 08:50 AM pocono wrote:

> WHAT A DUMB REASON TO SELL A STOCK

Jul 01 10:57 AM

[Old Trader:]

The author makes a valid point about the fuel efficiency of rail over any other current form of transport, but one thing I feel he's missing in overweighting CSX at the expense of UPS, is UPS's growing presence in international trade, specifically in Asia. They're developing quite a presence there already and its growing by leaps and bounds. Additionally, the exit of DHL from the US market leaves a somewhat larger pie for UPS and FDX to share.

Full disclosure: Long UPS (core holding)

Jul 01 05:17 PM

[Stone Fox C...:]

Valid points, but alot of what CSX ships will head to Asian markets so I'm not sure that gives UPS any advantage. They are still likely to face alot of pressure of the physical delivery of items like documents. Not only is it not 'green' but its a waste of time and money especially when your talking international trade. CSX or any other railroad is the better long term bet.

Jul 01 05:46 PM

[Jake2:]

Two small caveats: coal, for any number of reasons, is supect. And fertilizers recently have been in cutback mode: viz. POT, MOS, etal. You are better off with far west rails.

Jul 01 06:00 PM

[Henry Buttal:]

While I think CSX or NS or UP or BNSF are all railroads that have different merits, I think it shows a misunderstanding of the way UPS operates in your statement here. This, by the way, doesn't invalidate making a move between the two.

UPS is a logistics provider, and not the equivalent of a railroad, which is usually almost 100% rail focused. In fact, UPS is a huge consumer of rail services, moving a significant amount of intermodal cargo on NS, BNSF, etc.

I would argue that adding rail, or rebalancing with a railroad makes sense. I don't follow the argument you get out of UPS to move into CSX, unless you increased liquidity with the move, and reduce your overall position in transportation to a lighter weight.

Jul 02 10:36 AM