Trade of the Day: United Parcel Service (UPS)

Advertisement

It’s been a down and up year for United Parcel Service (UPS). The stock started 2015 on a rough note when the company announced on Jan. 23 that fourth-quarter earnings would fall short of expectations and that 2015 results would be hurt by higher costs. UPS shares fell 10% that day and remains down nearly 7% for the year.

Recently, however, the chart has turned. UPS has popped nearly 10% in less than two weeks, with the primary catalyst being positive earnings this time around. The stock’s 5% jump the day earnings were reported (July 28) was its biggest one-day move in five years.

UPS reported earnings of $1.35 a share, which was well ahead of expectations for $1.26. Revenue was a little light – $14.1 billion versus expectations of $14.5 billion – but investors were more interested in management’s statement that full-year earnings would come in at the higher end of guidance for $5.05–$5.30 a share. Lower fuel costs are helping earnings, and the company is already making plans for pricing and controlling costs during the busy holiday season.

As I mentioned, UPS gapped up the day after earnings, and it has been trending steadily higher since. You can see how the stock has traded so far this year, noting the big drop at the end of January and the big pop in the last week:

ups

Volume has been pretty robust since earnings, and it’s a good sign that UPS has recaptured its 9-, 50- and 200-day moving averages. I expect money will continue to flow into the name, which makes the stock a good candidate for call options. I prefer in-the-money calls to reduce risk, pay as little premium as possible, and make decent money in just a small move in the underlying stock.

For example, the UPS October $97.50 calls closed yesterday at $5.99, which means you’re paying a premium of $0.55. Buy the UPS calls here at current levels, and you would need the stock to move only about $0.60 higher, a move of just 0.6%, to make a quick 10% on your money.

Hilary Kramer is the editor of GameChangersBreakout Stocks Under $10High Octane TraderAbsolute Capital Return and Value Authority.

She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network, and other media.


Article printed from InvestorPlace Media, https://investorplace.com/2015/08/united-parcel-service-ups/.

©2024 InvestorPlace Media, LLC