Markets
UPS

Here's Why Shares of UPS Gained 11% in June

What happened

Shares of United Parcel Service (NYSE: UPS) climbed 11.1% in June, according to data provided by S&P Global Market Intelligence. Although the company has hardly been a world-beater in recent years, UPS continues to benefit from the constant comparisons between it and archrival FedEx (NYSE: FDX).

So what

UPS shares, like those of many of the transports, got a boost early in June: Tensions eased between the U.S. and Mexico, and the threat of new North American tariffs faded. A softening of rhetoric between the U.S. and China helped as well.

More broadly speaking, UPS seems to be getting the better of comparisons with FedEx. In June FedEx ended an express contract with Amazon.com, opening up the potential for more package volume to flow through UPS's network. And it was FedEx, not UPS, that got caught in the crosshairs of a conflict between the U.S. and China over Huawei.

A UPS Boeing 747 cargo plane in flight.

UPS was flying high in June. Image source: United Parcel Service.

But UPS shares did get a lift when FedEx reported fiscal fourth-quarter results that, while down year over year, beat Wall Street expectations.

Investors tend to look at UPS and FedEx in tandem. And right now, UPS is benefiting from FedEx results indicating that global shipping headwinds, while still present, are not getting any worse. It's also enjoying the benefits of FedEx's stumbles.

Now what

The June jump is nice, but UPS still trails the S&P 500 by 13 percentage points for the year; over the past five years the company's shares have gained an anemic 6%, well below the S&P 500's 50% gain during that period. This is true even though the company has been generously returning cash to shareholders: UPS returned $1.1 billion in share repurchases and dividends in the first quarter of 2019 alone.

UPS is in the middle of an ambitious plan to spend upwards of $20 billion on new facilities, vehicles, aircraft, and technology through 2020, all of which should leave it well-positioned to continue to grow its business. The payoff on that spending might not occur right away, and trade issues or a slowing economy could be headwinds. But even after the June surge, investors are enjoying a 3.76% dividend yield while they wait.

UPS isn't a business that can offer monthly gains of 10% or more, but for long-term holders, there's a lot to like about the course the company is taking.

10 stocks we like better than United Parcel Service
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and United Parcel Service wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of June 1, 2019

 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Amazon and FedEx. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

UPS FDX

Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More