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We See An Opportunity In United Parcel Service

Summary

  • UPS has seen shares fall over 20%, and we believe short-term traders and longer-term value investors should be looking at UPS.
  • Chart suggests support is being approached, but we like the fundamentals.
  • We do need to watch for the impact of Amazon Air longer term; but in the near term, any negative hit is priced into the stock.
  • Across the board segment improvement in revenues with widening profit in the supply chain.
  • This idea was discussed in more depth with members of my private investing community, BAD BEAT Investing. Start your free trial today Ā»

United Parcel Service (NYSE:UPS) stock has been under a lot of pressure in recent weeks. Transportation names have felt the pinch of late and fears of competition are growing. However, we believe that there is opportunity to scoop up shares of UPS on this most recent selloff. The company has had a strong start to the busy holiday shipping season, a critical time for this important quarter. When the name recently reported its earnings, it raised its full-year cash flow guidance. The Street has had a mixed reaction to company and sector news over the last two months or so, but we believe both short-term traders and longer-term investors have an opportunity to enter UPS here at $106 per share for upside. The chart looks strong, but more importantly, the fundamentals continue to be solid. Performance is stellar, and we discuss our outlook for future performance and how to play the stock.

Price action

The recent price action in the last year has the name approaching what our chartist sees as a support area around $104-105:

Source: BAD BEAT Investing

Based on what we are seeing here, the name is in an attractive target area under the $110 level, and we think support is a point or two below current levels. Short-term traders who enter here may wish to consider a stop-loss order on a downside level of $99.50, whereas $113.50 and above is a short-term upside target. Longer term we believe the fundamentals continue to support upside, despite competitive risks.

Fundamental discussion

While we often trade, UPS as a stock has rewarded long-term investors over the years with slow but steady share price growth and a growing dividend. That is a winning combination. We continue to think that many longer-term investors are ignoring this name given the relatively low volume on shares

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This article was written by

Quad 7 Capital profile picture
38.78K Followers

Quad 7 Capital is a team of 12 with a wide range of experience sharing investment opportunities for nearly 7 years. Quad 7 Capital as a whole has expertise in business, policy, economics, mathematics, game theory, and the sciences. They share both long and short trades and invest personally in the stocks they discuss within their investing group. They lead the investing group Bad Beat Investing include: daily market commentary and market briefing, 1-2 trade ideas per week, 5 chat rooms for a range of sectors, volatility screeners, unusual options activity alerts, and economic calendars.

Analystā€™s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in UPS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (22)

r
bmwmc: To get to the mid 80s would be a yield of over 4%. The last time it did that was in the great recession and UPS has been raising the dividend at close to double digit rates. In 12/2004 it was selling for close to 30 times earnings (and yield was less than 1.5%) versus its long term 22 times. No doubt it has been beaten down, thus presenting an opportunity. I bought some more today for the yield.
bmwmc profile picture
When it touches $86.25 that would match the price of 12/15/2004. But hey you still got dividends right? Except you'd still be underwater inflation-adjusted terms.
P
I bought 50 shares at 104 earlier this year in March, what are your thoughts on how much lower this goes from here? Tempting to add another 50 shares here. solid dividend and should be able to get back to $110 easily.
bmwmc profile picture
Catch a falling knife? No thanks. Will take another look when it gets into the mid-80's.
Tcostant profile picture
I'm still a big believer in UPS, and anything Amazon deliveries on it's own, will more than be offset by additional Amazon growth, Long UPS and buying monthly!
p
pbs67
07 Dec. 2018
Notice a lot of lines where "name" is in place of UPS, such as "We continue to think that many longer-term investors are ignoring this name given the relatively low volume on shares traded compared to comparable market cap companies." Is some of this article generic or automatically generated, and you just type in the company? There seem to be a lot of articles like that on some sites, where it seems like the entire piece is computer generated. This article has enough company-specific stuff that it can't all be computer generated. But I am curious, and, unfortunately, it does raise some questions about the validity of any analysis.
Quad 7 Capital profile picture
It is more conversational really, assure you we are a team of real people lol.
M
A blue chip stock, good yield, growing dividend. At this time UPS, is not overvalued.
Dividend Dojo profile picture
Winter...I mean Amazon Air is coming. šŸ˜
T
Don't forget- lower fuel costs!
Equityhigher profile picture
And dividend to boot
Equityhigher profile picture
UPS... new 5 year contract with union... greater flexibility in exchange... best in breed profit margin... one network vs three with fed ex... massive capital outlay impacting majority of volume flow... largest alternative fleet... largest private fleet period... partnerships with top providers in Europe and Asia (yes with SF Express in China, in process of deploying blockchain technology, B2B sector share, and a patented color of Pullman brown. Just a few reasons...
F
Good reasons. Thanks.
F
I also am trying to decide whether UPS or FDX is currently the better stock. UPS wins on dividend yield but a lot of analysts seem to like FDX.
h
Great article, I agree the selloff in UPS and FDX have made them both attractive investments. I was wondering why you believe UPS is the better play among these two.
careful investor 1 profile picture
i use both services. UPS hands down every day.
H
Amazon Air will not attract any other retailers as they won't give $$s to Amazon. UPS has completed a massive capital investment cycle over last two years. Most efficient sorting warehouses, new facilities, expanded EU capacity and efficiency. Capital investment should be dropping raising cash flow. EU market is big growth opportunity as well as raising shipping costs for Chinese with the expected renegotiation of shipping treaties. Lots setting up to make UPS very competitive for the next decade.
TradeThrough profile picture
Agree with many of the points. Prefer to stay away from companies that fund their pension obligations via debt. Debt should be used to fund projects or acquisitions.
D
Teamster pays pension for Drivers, plus President Trump wants the Post Office to rise their rates because of the Billions of dollars the Post Office is. Amazon uses the Post Office the majority of the time, right now, so Amazon will feel the pinch. I feel UPS or FedEx has no concerns about Amazon for the immediate future. Morgan Standley missed it ,on this one.
D
I will stay with UPS long term. Great dividend, Great Company.
T
Time to buy.
paulformal profile picture
UPS ia a Great company, Great employees, Great Management. They should not let Amazon and Wal-Mart dictate to them. Many US manufacturers were dictated to by Wal-Mart, who showed no loyalty and dropped them for cheaper prices from China. Those manufacturers are now out of business. Amazon is threatening to do the same to UPS now. It is hurting loyal small business who are not competing at same prices as UPS gives to Amazon. Long term UPS stockholder dripping the dividends. Good luck to all. Happy and Healthy holidays.
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