UPS Stock Will Bring the Holiday Goods

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Economic recovery and a free-spending consumer are making the holidays merry for cyclical stocks that get a boost from busy cash registers. However, even a cursory examination of the news headlines reveals the many dangers lurking at home and abroad that could trigger a broad market selloff, such as occurred last week.

UPS 185Investors looking for a play on recovery that’s leavened with a measure of safety should consider United Parcel Service (UPS), America’s largest and most profitable logistics company.

“Big Brown” enjoys many strengths that should boost UPS stock long after the New Year’s champagne has lost its fizz. At the same time, the company’s size, market dominance and wise strategic moves make it less vulnerable to external shocks.

UPS and rival FedEx Corporation (FDX) command a duopoly in the U.S. delivery market, giving them formidable pricing power. UPS is considerably bigger than FedEx in ground delivery, with about 60% of the market compared to FedEx’s 30%.

As the annual shopping-and-shipping boom reaches a crescendo, UPS stock will reap the benefits of the company’s $500 million investment in ground delivery infrastructure it made earlier this year to handle the peak holiday season.

It seems counterintuitive in this age of e-commerce, but UPS’ dominance on the ground gives the company a major advantage over FedEx. That’s because increasing numbers of consumers are buying goods online for three- to five-day delivery and email is becoming the preferred method of sending documents rather than overnight delivery.

Both companies are benefiting from plummeting fuel costs, but overnight air delivery, which is FedEx’s bread-and-butter, remains costlier than ground delivery.

A firm grip on costs has made it easier for UPS to introduce innovations that compete with e-commerce, such as the company’s “My Choice” program, under which customers can pick the exact time and location of deliveries.

UPS is thriving in the U.S., but the company’s main strategy right now is to expand into fast-growing markets, particularly central Europe and Asia.

China, once closed to UPS, is opening up to the company and allowing it to launch new operations on the mainland. The Middle Kingdom represents a vast source of future growth for the Georgia-based firm.

UPS also is targeting developing countries such as Vietnam, where it recently unveiled a new wholly owned delivery network.

UPS Stock: Ship Shape for Growth

UPS reported third-quarter 2014 revenue of $14.3 billion, compared to $13.5 billion in the same period a year ago. Earnings came in at $1.2 billion, compared to $1.1 billion in the same quarter a year ago. Earnings per share (EPS) reached $1.32, beating analysts’ consensus of $1.29 and up from $1.16 in the same year-ago quarter.

Management reaffirmed its full-year guidance of $4.90 to $5 in EPS. The company also expects its shipments during the month of December to jump 11% on a year-over-year basis.

UPS’ integrated network for both ground and express shipments, combined with expansion into emerging markets and stringent cost controls, give this logistics behemoth the edge over FedEx and allow it to continue innovating in the face of the digital threat. This holiday season and beyond, UPS stock will stand and deliver.

As of this writing, John Persinos did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/ups-stock-united-parcel-service-holiday-goods/.

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