Two giants of package delivery were overwhelmed thanks to online sales records. Which one of the two is a better buy and why?
Heavy online sales meant delays at two of the world's leading package delivery company, FedEx and UPS.
UPS was caught off guard when deliveries well exceeded the 132 million they were expecting last week. The company issued a statement saying:
"UPS apologizes to both shipping and receiving customers who may have delays. We had additional sorting operations at Worldport, the UPS international air hub in Louisville, KY, on Christmas and are making deliveries and pickups today. Customers should continue to access UPS.com for the most updated information."
Meanwhile, FedEx also was inundated with packages, causing that company to say:
"Our 300,000 team members were focused on safely delivering our customers packages this holiday season and we are proud of their efforts. The fact is FedEx is projected to handle 275 million shipments, in this shortened holiday season between Thanksgiving and Christmas, and we operated with very high service levels - over 99% at FedEx Ground, for example - during our busiest time of the year."
Since the start of the week, both stocks are up, with UPS gaining 1% while FedEx is up 0.3%. And, for the year, both have outpaced the S&P 500's run-up of 29%; FedEx investors enjoyed 56% returns on their holdings while UPS saw an upside of 41%.
According to Andrew Busch, editor and publisher of The Busch Update, FedEx is the stronger of the two based on the technicals. Busch has a specific strategy he says works best for trading FedEx involving the stock's 10-day and 30-day moving price averages.
"When the 10-day goes above the 30-day, it's an indication to buy the stock," says Busch about FedEx. "It's accelerating to the upside. A very simple way of looking at this stock has worked out extremely well for FedEx; If you go back over the whole year, really good."
The 10-day moving average has been above the 30-day moving average since September, notes Busch, and he believes it's still a buy. "The 10-day is still above the 30-day," he says. "Stay long FedEx until that 10-day moves below the 30-day."
(Watch: Where's my stuff UPS?)
Chad Morganlander, portfolio manager at Washington Crossing Advisors, agrees with Busch that FedEx is the strong of the two but he is more cautious on the stock.
"I do believe FedEx is the better of the two," says Morganlander. "We think there's going to be margin expansion for FedEx and you don't need to get a tremendous amount of ebullient global growth to get FedEx to that point."
However, Morganlander sees FedEx's stock as being at its proper valuation level, if not a little bit richly valued. In other words, investors aren't getting a bargain with FedEx. But Morganlander believes that, relative to UPS, FedEx has an upper hand, especially in a growing worldwide economy.
"We believe global growth will reaccelerate in 2014, although we see that there is pricing pressure, especially on the next-day type of express shipping segment," says Morganlander. "That has put pressure on UPS's margins at this point. So, we would go with FedEx but we would be very careful at this point to perhaps buy these two if you had a 10% to 15% pullback."
To see more analysis of FedEx and UPS by Busch and Morganlander, watch the video above.
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- Professional Services
- FedEx Ground