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Today, we’re opening a new bullish trade on FedEx (NYSE:FDX) after the company reported earnings on Tuesday evening. The news was good, as FDX continues to outpace UPS (NYSE:UPS) in automation and streamlining operations. The company beat profit expectations and outperformed in key business lines such as express. The company also disclosed a windfall profit of $1.6 billion from last year’s tax cut. Overall, performance was very good, and the outlook remains strong based on economic growth, which makes today’s decline a little confusing.
As with several other companies this month, FDX warned that a trade war and protectionism will hurt the U.S. consumer and business economy. This is true, but bringing it up in the earnings call has been a reliable trigger for short-term sellers over the last few weeks. If a trade war with China, Canada, Mexico and the EU accelerates, it would be a bad thing for transportation and shipping companies. However, we believe this is likely where the real opportunity lies.
From a technical perspective, FDX is at support, and we know that investors haven’t been willing to price in a lot of negative consequences from the current trade disputes. At least in the short term, investors seem to be counting on a resolution to the back and forth tariff threats. As that is the case, we feel that FDX is oversold on trade fears and out of step with the rest of the market. We don’t know whether investors will remain complacent in the long term, but, over the next few weeks, a bias to the upside from short-term dips is likely.
‘Buy to open’ the FDX July 20th $255 Call (FDX180720C00255000) for a maximum price of $5.00.
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