3 operations to win with a share of the shipping sector

  • UPS shares are down more than 19% since the start of 2022.

  • Strong dividends can provide a hedge in the current inflationary environment.

  • Long-term investors might consider buying shares at current levels.

  • For tools, data and content to help you make better investment decisions, try InvestingPro+.

Shareholders of the Atlanta, Georgia-based shipping giant United Parcel Service (NYSE:) have seen the value of their investment fall more than 14.8% in the last 52 weeks and 19.3% so far this year. By comparison, the is down about 19% in 2022. Meanwhile, shares in fierce rival FedEx (NYSE:) have lost 20%.

On February 1, UPS shares topped $233, hitting an all-time high. But by May 19, they were down almost 30%. The 52-week range for UPS shares has been $165.34 to $233.72, while the market capitalization (cap) currently stands at $151.2 billion.

In 2021, United Parcel Service generated revenue of $97.3 billion. The logistics giant leads the express delivery and courier market in the United States, closely followed by FedEx. It is followed by the United States Postal Service and the logistics services of amazon (NASDAQ:).

How did the recent metrics arrive?

UPS released first-quarter figures on April 26. Revenue grew 6.4% year over year to $24.4 billion. Adjusted diluted earnings per share (EPS) was $3.05, up 10.1% year over year.

The company generated $3.92 billion in free cash flow during the quarter. Earlier in the year, UPS had raised prices to fight inflation.

Regarding the results, the general director Carol Tomé commented:

“The agility of our network and the continued execution of our strategy provided us with another quarter of strong financial results, putting us on track to achieve our consolidated financial goals for 2022.”

Following the financial release, the company reaffirmed its financial goals for fiscal 2022, projecting peak revenue of $102 billion. Investors are hopeful that UPS can continue to tap into the growth potential of e-commerce both in the United States and around the world.

Prior to the release of first-quarter results, UPS shares were hovering around $182, but on June 10 they closed at $173.05. The shares currently support a dividend yield of 3.51%.

What to expect from United Parcel Service stock

Among 28 analysts surveyed by Investing.com, UPS stock is rated “outperformWall Street has a 12-month mid-price target of $224.22 for the stock, suggesting a nearly 30% rise from today’s price. The 12-month price range is currently $148-$270. .

UPS Consensus Estimates

Source: Investing.com

Similarly, based on a number of valuation models, such as those that might consider price-to-earnings and price-to-sales multiples, or terminal values, the median fair value of UPS shares on InvestingPro stands at $222.32.

UPS FairValue

UPS FairValue

Source: InvestingPro

In other words, the fundamental valuation suggests the stock could rise 28.5%.

We can also look at the financial health of UPS, as determined by rankings of more than 100 factors compared to its industry peers.

For example, in terms of growth, price momentum and earnings, it scores 4 out of 5. Its overall score of 4 points is a great performance rating.

Currently, the security’s price-to-earnings, price-to-book and price-to-sales ratios are 14.1x, 9.8x and 1.5x, respectively. The comparable metrics of the pairs stand at 16.4x, 4.4x and 0.8x, respectively.

Our expectation is that United Parcel Service shares will trade in a wide range between $160 and $180 in the coming weeks. Afterwards, UPS shares could start a new leg higher.

Add UPS Stocks to Portfolios

United Parcel Service bulls who are not worried about short-term volatility might consider investing now. His target price would be $222.32, quantitative models suggest.

As an alternative, investors could consider purchasing an exchange-traded fund (ETF) that has UPS stock as a holding. Examples include:

  • iShares Transportation Average ETF (NYSE:)

  • Industrial Select Sector SPDR® Fund (NYSE:)

  • ProShares Supply Chain Logistics ETF (NYSE:)

  • Vanguard Industrials Index Fund ETF Shares (NYSE:)

  • US Global Sea to Sky Cargo ETF (NYSE:SEA)

Finally, investors who expect UPS stock to rally in the coming weeks might consider setting a spread of bullish call options.

Most options strategies are not suitable for all retail investors. Therefore, the following discussion of UPS stock is offered for educational purposes and not as an actual strategy to be followed by the average retail investor.

Spread of bullish call options on the shares of United Parcel Service

Price at time of writing: $173.05

In a spread In bullish call options, a trader has a long call with a lower strike price and a short call with a higher strike price. Both parties to the transaction have the same underlying share (ie United Parcel Service) and the same maturity date.

The trader wants UPS stock to rise in price. In a spread of bullish call options, both the levels of potential gains and losses are limited. The operation is established by a net cost (or net debit), which represents the maximum loss.

The operation of spread Today’s bullish call option involves buying the $175 call option on August 19 for $10.10 and selling the 180 call option for $7.70.

The purchase of this spread Trading call options costs the investor about $2.40 or $240 per contract, which is also the maximum risk of this trade.

Note that the investor could easily lose this amount if the position is held to expiration and both parties expire worthless, i.e. if the UPS stock price at expiration is below the strike price of the option. long buy (or $175 in our example).

To calculate the maximum potential profit, we can subtract the premium paid from the spread between the two strike prices, and multiply the result by 100. In other words: (5.00 – 2.40) x 100 = $260.

The trader will earn this maximum profit if United Parcel Service’s share price is equal to or greater than the strike price of the short call option (the highest strike price) at expiration (or $180 in our example).

conclusion

In recent months, UPS shares have come under significant pressure. However, the decline has improved the margin of safety for buy-and-hold investors, who might consider investing soon. On the other hand, experienced traders could also set up an options trade to benefit from a possible rise in the price of UPS stock.

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