Air freight and logistics companies find themselves in a sweet spot to benefit from the worldwide jump in e-commerce sales and continuing strength, albeit at a slower pace, of the U.S. economy. Stalwart industry player United Parcel Service, Inc. (UPS) expects a 40% surge in package revenues and a 28% increase in cross-border e-commerce volumes by 2022.
However, the industry isn't without its challenges. Major players face increasing competition from Amazon.com, Inc. (AMZN) as the e-commerce giant continues to expand its logistics network. Also, a recent task force review of the United States Postal Service (USPS) may result in increased delivery charges, which in turn could lift the cost of last-mile delivery for package-moving companies. Furthermore, major freight players that have exposure to China may feel the effects of a slowdown in the world's second largest economy as the nearly year-long trade war with the United States starts to bite.
From a technical standpoint, several stocks in the industry staged breakouts above crucial resistance levels on Monday, April 1, which may trigger follow-through buying in subsequent trading sessions. Let's analyze the charts of three large-cap issues in the space and discuss several trading ideas.
United Parcel Service, Inc. (UPS)
Founded back in 1907, UPS provides a letter and package delivery service through three business segments: U.S. Domestic Package, International Package, and Supply Chain and Freight. Berenberg analyst Joel Spungin recently upgraded the stock from "hold" to "buy," telling clients that UPS could deliver better margins and that the company is too conservative about available cash flow. "Management is increasingly optimistic on margin upside and EBIT growth in both U.S. and International operations," Spungin wrote, per Barron's. Trading at $114.43 with a market capitalization of $98.43 billion and offering a 3.48% dividend yield, the stock is up 15.55% for the year, outperforming the industry average by 2.52% over the same period as of April 2, 2019.
UPS shares have reversed all of December's steep losses and trade 14 cents above their closing price from $114.29 Nov. 30, 2018. The stock broke above a seven-month downtrend line in Monday trade on its highest volume in the past seven days, suggesting buyer conviction. Traders who take a long position here should place a stop-loss order beneath Friday's low at $110.93 and bank profits on a move up to the 52-week high at $122.93 set in September last year.
FedEx Corporation (FDX)
With a market value of $48.58 billion, FedEx Corporation (FDX) offers global transportation, e-commerce and business services solutions. The world's largest express delivery company generated over half of its $65 billion in revenue from its express division in fiscal 2018. Over the past few years, the company has invested heavily in information technology advances, such as artificial intelligence and robotics, to enable it to improve efficiencies and reduce its headcount. FedEx introduced a voluntary buyout program in December as part of a cost-cutting program to save between $225 million and $275 million a year in payroll-related expenses. The Memphis-based company's stock has gained nearly 13% year to date (YTD) as of April 2, 2019. Investors receive a dividend yield of 1.46%.
The FedEx share price still sits 22% below its close from Nov. 30, 2018, as investors remain cautious after the shipping giant cut its earnings guidance for the second time in as many quarters when it reported last month, citing an overall slowdown China's economy for the downward revision. The share price, however, did close above a two-month trading range in yesterday's trading session, which offers a favorable risk/reward trading opportunity. Those who buy at current levels should set a take-profit target at $210, where the price may find resistance from the October swing low and the 200-day simple moving average (SMA). Consider setting a stop just below the 50-day SMA to close trades that don't follow through to the upside.
Expeditors International of Washington, Inc. (EXPD)
Expeditors International of Washington, Inc. (EXPD) operates as a logistics services company providing air freight, ocean freight and order management in the Americas and internationally. The freight-forwarding specialist surpassed analysts' top- and bottom-line projections in the fourth quarter. Highlights included a 6% increase in year-over-year (YoY) airfreight services revenues and an 18% jump in YoY ocean freight and ocean services revenues, while customs brokerage and other services revenues improved 36% from the year-ago figure. The company has exceeded the Street's earnings expectations over the past four consecutive quarters. Expeditors stock has a market cap of $13.34 billion, issues a 1.19% dividend and sports a YTD gain of 13.97% as of April 2, 2019.
Like UPS, Expeditor's share price has recovered all of December's sell-off and closed just a dime below its June 12, 2018, 52-week high in yesterday's trading session. In another win for the bulls, the 50-day SMA has recently crossed above the 200-day SMA – generating a golden cross signal, indicating the emergence of a new uptrend. It may be prudent for traders to wait for a breakout and buy the first pullback, as the relative strength index (RSI) sits just below overbought territory, which may limit short-term gains. Consider using the 15-day SMA as a trailing stop to let winning trades run as far as possible.