FedEx (FDX) released results this morning and, after a rare miss last quarter, returned to what seems to be their normal state; a solid quarter that beat expectations. This news will no doubt push the stock up to new highs above $145. Normally, to somebody like me with an inbred contrarian streak, this would prompt me to look for reasons to sell. In the case of FedEx, however, it doesn’t pay to overcomplicate your analysis.
It isn’t that I don’t think the initial reaction to the news will be overdone. In fact, as I write the stock is already coming off of an early morning high over $146. It is just that any pullback from the inevitable overreaction is likely to be small and short-lived. The thing is, as much as pundits like I search for convoluted reasons to trade stock, it is the basic things that really count. Sometimes, the only rule you need to follow is the KISS (keep it simple stupid) principle.
FedEx is an exceptionally well run company with a strong brand and a good reputation. CEO Fred Smith is widely recognized as one of the best there is. The stock trades at a reasonable P/E (under 18 x forward earnings before the release) and pays a small, but safe and growing (at 12%), dividend. The company has good earnings growth of around 10% despite their size and maturity and a history of transparency and reasonable guidance.
There are, as far as I can see, only two reasons that you could possibly find to sell FDX. First, as I mentioned above, it is at all time highs and the initial reaction to the earnings beat could be overdone.
Generally, though, that is more of a worry in the case of a stock where exponential growth is assumed. If Facebook (FB), for example, were to jump suddenly to new highs over $72.50 I would, despite having a generally favorable view of the stock, consider a short term sale. High P/Es generally make stocks more vulnerable to the laws of gravity. Unless the actual earnings picture really changes, what goes up will, at some point, probably come down.
The second reason that I could maybe find not to buy, or even to sell FDX is that it is boring. I am, by training and nature, a trader, so I take a more active approach to managing a portfolio than most. If that is your style, then the tendency is to look for trades with enormous upside potential. Conscious of the fact that some will be losers, it is easy to look only for opportunities with a big wow factor. When a steadily climbing stock jumps 5%, it is tempting to sell out if long or short it if square. The upside offers little in the way of wow factor. No matter how active a trader you may be, however, there is always room in your portfolio for boring, fundamentally sound investments.
There are, as always, risks. In transportation, fuel costs are always a worry. As I pointed out a couple of days ago, WTI crude has stopped short of levels that have a noticeable effect in the US and has, despite a worsening situation in Iraq, backed off a little. A massive increase in fuel costs from here looks unlikely.
Given that and a fundamental outlook that suggests more slow, steady growth to come, searching for reasons to sell FDX is a pointless exercise... far better to just “keep it simple stupid” and buy and hold.