Are These 3 Stocks Worth Buying?

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United Parcel Service (NYSE: UPS) is widely known as a safe and shareholder-friendly investment, but it's possible that one of its peers might present a better opportunity. 

Getting ahead of itself
If you compare UPS' all-time stock movement to FedEx (NYSE: FDX) and Expeditors International of Washington (NASDAQ: EXPD), you’re not going to be overly impressed. The chart below demonstrates: 

<img alt="" src="http://media.ycharts.com/charts/12af0dbf41e75db1143d91a642a77824.png" />

UPS data by YCharts

However, we need to try and look at possibilities in the future. That being the case, one should also know that UPS is trading at 102 times earnings, making it much more expensive than FedEx and Expeditors, which are trading at 22 times earnings and 26 times earnings, respectively.

As if that’s not enough, UPS has a debt-to-equity ratio of 3.15, whereas the debt-to-equity ratios for FedEx and Expeditors are 0.17 and nil, respectively. 

UPS has seen revenue increase over the past two years, but earnings declined in 2012. Below is its diluted EPS over the past five years:

  • 2008: $2.94
  • 2009: $2.14
  • 2010: $3.48
  • 2011: $3.84
  • 2012: $0.83

UPS is making moves to cut costs, one of which is to continue buying liquefied-natural-gas tractor trailers. This has the potential to cut fuel costs by up to 40%. UPS also uses electric trucks in highly populated areas, which significantly reduces fuel costs, just on a smaller scale.

One of the biggest headwinds for UPS is consumers opting for cheaper package-delivery options. This is in addition to international businesses slowing their spending, especially in India and China. Another big headwind is rising pension costs.

Despite all these headwinds, UPS expects EPS growth of 4.13% in the second half. At the same time, UPS has lowered its FY2013 EPS guidance to $4.65-$4.85 from $4.80-$5.06. The good news is that UPS consistently buys back shares and hikes its dividend. Currently, UPS yields 2.80%.

A steadier option
FedEx has seen consistent revenue improvements over the past three years. However, the pace has slowed. Like UPS, earnings (diluted) declined last year, but FedEx has been a bit stronger on the bottom line:

  • 2008: $0.31
  • 2009: $3.76
  • 2010: $4.57
  • 2011: $6.41
  • 2012: $4.91

FedEx is still expanding internationally, and it’s focusing more on its Ground operations, which produce high margins. FedEx also has a goal of improving fuel efficiency. In this case, FedEx would like to make its entire fleet 30% more fuel efficient by 2020. This wouldn’t just aid the bottom line, but help the environment as well.

FedEx is trading at 22 times earnings, and it currently yields 0.50%, which might not pique your interest, but with a strong balance sheet, the dividend should remain intact for the foreseeable future. A strong balance sheet also has the potential to lead to future buybacks, and it increases the odds of acquisitions to help aid fuel growth if necessary.

Least popular, best performer
Expeditors might be the best performer over the past 13 years in regards to stock appreciation, and it might have held up best during The Great Recession due to limited assets and no debt, but revenue declined in 2012, which differentiates it from UPS and FedEx. As far as annual earnings are concerned, it’s yet another company that headed in the wrong direction in 2012: 

  • 2008: $1.37
  • 2009: $1.11
  • 2010: $1.59
  • 2011: $1.79
  • 2012: $1.57

Expeditors is also looking to expand internationally, but reduced air freight demand has hurt the business. This is also one of the reasons Stifel Nicolaus downgraded the stock from Buy to Hold, putting an emphasis on weak airfreight performance out of China.

Thanks to its business model, Expeditors sports an impressive net margin of 5.64%, and there is no long-term debt to worry about. With exposure in six continents and ever-increasing expansion, Expeditors looks good. Additionally, Expeditors currently yields 1.50%.

Conclusion
All three companies are likely to be long-term winners. However, UPS looks expensive here, especially considering the uncertainty of the macroeconomic environment. Cost-cutting measures might lead to improved earnings, and the 2.80% yield is a bonus, but reduced guidance is concerning and makes this a stock to avoid.  

FedEx consistently delivers big profits, and it's now focusing more on its ground operations. This has the potential to lead to higher margins and improved earnings. FedEx should also become more fuel efficient through the years, which will further aid earnings. FedEx is recommended for long-term investors who buy incrementally. However, use caution, as the stock isn't likely to hold up well in a bear-market environment. 

Expeditors is debt-free, which will help any investor sleep well at night, but due to reduced airfreight demand and a decline in revenue in 2012, Expeditors doesn't look to be the best choice here. Overall, FedEx looks like the most appealing investment, but only in a relative sense. 

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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends FedEx and United Parcel Service. The Motley Fool owns shares of Expeditors International of Washington. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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