This is a good time to buy into this discounted stock, since most investors are missing its real value, and you can set up an easy dividend reinvestment plan to average in over the long term, writes Charles Carlson of DRIP Investor.

While a lot of investor attention is usually focused on the performance of the Dow Jones Industrial Average, it is the Dow Jones Transportation Average that might be the single best indicator for where the market is heading. The good news is that the Dow Transports recently advanced above their significant October highs, and look poised to move higher.

One stock that should lead the Transports higher is FedEx (FDX). The stock currently trades at an 8% discount to its 52-week high of just under $99 per share, and a 25% discount to its all-time high of just over $121 per share set in 2007.

The Dow Theory—a market-timing tool that looks at the performance of the Dow Jones Industrial and Dow Jones Transportation Averages—says that the current market trend is bullish. All investors should have some exposure to transportation stocks during bull-market runs, and FedEx represents a top play in the group.

To give you an idea of the size and scope of FedEx’s delivery network, consider the following facts:

  • FedEx estimates that from Thanksgiving Day through Christmas Eve last year, it delivered more than 260 million packages, or more than 97 packages delivered every second.
  • The firm moved those packages via more than 90,000 vehicles on the road, 680-plus planes, and such “unusual” delivery methods as boats, gondolas, electric tricycles, and hybrid and all-electric delivery vans.
  • The firm has shipped animals of all stripes and kinds, from two giant Pandas (Mei Lan and Tai Shan) from the US to China, to more than 70,000 endangered sea turtle eggs from the Gulf of Mexico coast to Florida’s Atlantic coast to protect them from potential oil-spill impacts.

The company has been shipping lots of stuff of late, as witnessed by its decent showing in the fiscal second quarter ending November.

Revenue rose 10% in the quarter to $10.59 billion. Net income rose 76% to $497 million. Results benefited from strong performance of FedEx Ground business, as well as improved profitability of FedEx Freight. Per-share earnings of $1.57 in the quarter beat the consensus estimate of $1.52.

Because so many significant unknowns—weather, fuel prices, global economic developments—can impact the company’s earnings stream in a big way, these shares typically show above-average volatility. However, for investors who are willing to ride through such volatility, I would expect the stock to provide decent returns.

The stock trades at 14 times the fiscal 2012 analysts’ estimate of $6.37 per share, not a bargain-basement valuation but reasonable given the firm’s leverage to an economic rebound in the US and globally.

The stock currently pays a quarterly dividend of 13 cents per share. I would expect dividend growth to be in the 8% to 10% range on an annual basis.

FedEx offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company. Minimum initial investment is $1,000, although the firm will waive the minimum if an investor agrees to automatic monthly investment via electronic debit of a bank account of at least $50 per month.

Subscribe to DRIP Investor here...

Related Reading:

The Dividend Sweet Spot

2 REITs from Off the Beaten Track

3 Banks That Are Coming Back

Related Articles
  1. Stock Analysis

    8 Solid Utility Stocks for a Bear Market

    If you're seeking modest appreciation, generous dividend payments and resiliency, consider these eight utility stocks.
  2. Stock Analysis

    Why Phillips 66 (PSX) is a Solid Long-Term Bet

    Here's why Phillips 66 will likely remain one of the world’s largest and most profitable companies for a long time to come.
  3. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  4. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  5. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  6. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  7. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  8. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  9. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  10. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!