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Is FedEx (FDX) A Great Investment Pick?

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East 72, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio gross return of 2.1% was recorded by the fund for the third quarter of 2021 and a +36.7% gross return over the fiscal year. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

East 72, in its Q3 2021 investor letter, mentioned FedEx Corporation (NYSE: FDX) and discussed its stance on the firm. FedEx Corporation is a Memphis, Tennessee-based transport company with a $59.4 billion market capitalization. FDX delivered a -13.82% return since the beginning of the year, while its 12-month returns are down by -20.69%. The stock closed at $223.73 per share on October 13, 2021.

Here is what East 72 has to say about FedEx Corporation in its Q3 2021 investor letter:

"It has been some considerable time that the variables which contribute to profit growth estimation have been so volatile; not just the strictly financial aspects but the impact on timing of pandemic delays, consequent labour shortages, port and shipping delays (and costs) and resultant inefficiencies in the supply chain. Christmas stock arriving in January isn’t much use – and for some unlucky folks, that will be the case.

As a good example, FedEx Q1FY22 results reported a $450million increase in “costs due to a constrained labour market which impacted labour availability, resulting in network inefficiencies, higher wage rates, and increased purchased transportation expenses. This was partially offset by higher package and freight yields, increased international export express shipments and a favourable net fuel impact”3. If all of the costs were labour related, that would be around a 6% “inefficiency” increase. No inflation, don’t forget…."

Fedex FDX
Fedex FDX

Based on our calculations, FedEx Corporation (NYSE: FDX) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. FDX was in 61 hedge fund portfolios at the end of the first half of 2021, compared to 63 funds in the previous quarter. FedEx Corporation (NYSE: FDX) delivered a -24.44% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.