FedEx hits all-time highs but the technicals say stay away, according to one strategist.
It's a stock that's up 40% this year. But as FedEx reaches all-time highs, is it time to get out of the name?
While everyone is talking about record highs in the S&P 500 and great returns this year for the Dow Jones Industrial Average, there's another index that's at all-time highs and blowing away nearly every major index out there: Dow Jones Transportation Average. The index is up 30% so far in 2013.
The second-biggest component of the 10-stock Dow Transport index is Federal Express. Its stock has been on a tear since reporting better-than-expected earnings in late September. Over the past month, FedEx shares are up 12%.
This year would have surprised followers of the company a year ago. In September of 2012, FedEx expressed worry that a slowdown in China would negatively affect the company. But a slowdown in China is a relative term. While China's GDP growth slowed in the beginning of 2013, it was still growing well above 7%. In this year's third quarter, China's growth rate came in at 7.8% compared to the US growth rate of 2.5%.
In the most recent quarter, FedEx's revenues were $11 billion up 2% from the same time last year. Its Net income was up 6.5%. And, the company now believes it will carry more than 85 million shipments in the first week of December – its busiest time of year – putting it 13% above last year.
That good news isn't the only thing driving FedEx's stock into record territory this week. J.P. Morgan upgraded the company to overweight from neutral after FedEx announced a 32 million share buyback plan. Analysts at J.P. Morgan now have a $153 price target, about 18.5% above where it's currently trading.
"They posted two consecutive quarters of top line growth and that's been fantastic for FedEx," says CNBC contributor Gina Sanchez, founder of Chantico Global. "Now we're entering a phase where they're really starting to see results from their cost-cutting efforts."
While Sanchez believes improved profit margins will help the stock, she believes a lot of its results hinge on US economic growth. FedEx recently lowered its expectations for GDP growth in the coming quarters, notes Sanchez.
For Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, there's one additional reason for a recent pop in the stock has to do with a related input price: oil.
"[Crude oil is] down 5% on a month-to-date basis," says Ross. "You're seeing a commensurate 5% rise in the transports, not surprisingly."
But Ross believes the technicals are bearish, particularly after a recent short break above the stock's trend channel.
"You want to be a seller taking profits," says Ross. "Avoid the name [and] do not chase it."
Should investors look at better margins and more expected shipments as reasons to buy FedEx's stock or are the technicals giving a huge warning?
Watch the video above to see more analysis from Sanchez and Ross and hear what the fundamentals and technicals have to say about FedEx.
More from Talking Numbers: