Slowing global economic growth caused by the drawn-out U.S.-China trade dispute, coupled with significant investment in infrastructure to scale operations and improve delivery times, has significantly hampered the share price performance of freight stocks. The group has returned just over 10% so far this year, while the S&P 500 has logged a gain of 18.73%.
In better news for the package delivery companies, the U.S. Postal Service this week proposed an average 5.4% increase for its express-shipping products in 2020, giving freight players more scope to lift their pricing schedules. However, some analysts remain cautious about how much a hike in post office prices would have. “We expect a muted reaction from [the parcel shippers],” analyst Brian Ossenbeck wrote in a note, per Barron’s.
Traders who follow the industry should add these three parcel-moving leaders to their watchlist. Each appears well positioned to benefit from enhanced pricing flexibility and sits near key chart support. Below, we look at each company in more detail and aim to deliver several profitable trading ideas.
FedEx Corporation (FDX)
Memphis-based FedEx Corporation (FDX) provides transportation, e-commerce, and business services globally. The $36.88 billion company reported first quarter (Q1) fiscal 2020 earnings per share (EPS) of $3.05, which fell short of analysts’ expectations by a dime and contracted 11.8% on a year-over-year basis. The logistics firm also trimmed its full-year outlook, blaming increasing trade tensions, weaker global economic conditions, and higher expenses. From early next year, the company will increase delivery rates for FedEx Express, FedEx Ground, and FedEx Home Delivery by roughly 5% on an average. The firm also plans to lift its FedEx Freight shipping rates by about 6%. FedEx stock issues a 1.87% dividend yield and has tumbled 11.17% year to date (YTD) as of Oct. 11, 2019.
The company’s share price has oscillated within an orderly descending channel since April to form clear support and resistance areas. Selling pressure intensified after the firm’s dissapointing earnings report on Sept. 18, but the price now finds support from the channel’s lower trendline. Traders may decide to wait for a cross of the moving average convergence divergence (MACD) line above its signal line before buying the stock. Once in a trade, place a stop-loss order beneath this month’s low at $137.78 and target a move to the channel pattern’s top trendline at $170.
United Parcel Service, Inc. (UPS)
United Parcel Service, Inc. (UPS) offers package delivery, specialized transportation, and logistical services through three business divisions: U.S. Domestic Package, International Package, and Supply Chain and Freight. The Atlanta-based delivery titan posted better-than-expected Q2 results to record respective top- and bottom-line growth of 3% and 13%, citing increasing demand for its Next Day Air and Ground delivery services – next-day air shipping volume rose by 30%. Meanwhile, Wall Street expects UPS to post Q3 adjusted EPS of $2.05 when the company reports before the opening bell on Oct. 22. The firm recently announced that it intends to add 6,000 vehicles powered by compressed natural gas with supporting infrastructure next year to help meet its 2025 sustainability goals. Trading at $115.28 with a market capitalization of $98.99 billion and offering a 3.37% dividend yield, the stock has returned 19.70% YTD, outperforming the international shipping and logistics industry average by 9.37% as of Oct. 11, 2019.
UPS shares trended 35% higher between June and early September, helped along by the package delivery firm’s bumper Q2 earnings report. In more good news for the bulls, the 50-day simple moving average (SMA) crossed above the 200-day SMA in August to suggest the emergence of a new uptrend. More recently, however, the price has retraced to crucial horizontal line support at $112.50 that provides a suitable entry point for swing traders. Those who buy here should set stops underneath the August low at $110.51 and book profits near the 52-week high at $123.63.
Expeditors International of Washington, Inc. (EXPD)
With a market value of $12.31billion, Expeditors International of Washington, Inc. (EXPD) provides logistics services in the United States and internationally. The 40-year-old Seattle-based company delivered Q2 EPS of 88 cents on revenue of $2.04 billion. While the company’s bottom line figure topped Wall Street forecasts, lower air freight revenues contributed a slight top-line miss. Analysts expect the transportation giant to record 3Q EPS of 90 cents when the company releases its financial results ahead of the market open on Nov. 11. From a valuation standpoint, the firm trades at 18.83 times forward earnings, below its five-year average multiple of about 23 times. As of Oct. 11, 2019, the stock yields 1.42% and has gained 4.51% on the year.
Sideways action has prevailed on the freight company’s chart over the past five months. In the previous two trading sessions, price bounced from the range’s lower trendline at the $69 level on increasing volume and looks set to test upper resistance at $77. Those who take a long position should protect trading capital by placing a stop either beneath yesterday’s low at $70.51 or under Wednesday’s low at $69.30, depending on personal risk tolerance.