FedEx vs. UPS: And the Winner Is ...

As the price of oil continues its relentless climb, many businesses are feeling the pressure. Two companies that spend a good chunk of their revenues on fuel costs, FedEx (NYSE: FDX  ) and UPS (NYSE: UPS  ) , are reeling more than most. Their shares have been hammered on Wall Street because of missed earnings and lowered guidance, caused primarily by soaring fuel costs.

But is Wall Street punishing them more than necessary? There is certainly blood in the streets, but is it time to buy? If so, which is the better investment?

These are all fantastic questions that are not so easy to answer. Never shying away from a challenge, I will harness the power of the Motley Fool CAPS community to see what we can come up with.

What Wall Street thinks
One of the many reasons I love the CAPS game is the insight it gives us into Wall Street analysts' and professional investors' opinions on certain stocks. While we Fools know that placing faith in what the "experts" say is foolish (not Foolish!), it's nonetheless interesting to gauge Wall Street sentiment.

Here's a breakdown of the Street's opinion on both FedEx and UPS, courtesy of CAPS.

Company

No. of Bulls

No.  of Bears

% Bulls

% Bears

FedEx

17

2

89%

11%

UPS

16

0

100%

0%

Wall Street seems to favor UPS by a very slight margin.

Winner: UPS.

What the CAPS community thinks
Knowing what Wall Street makes of these two companies isn't nearly as cool as knowing what individual investors like you and me think. Unlike Wall Street, we have no ulterior motives for choosing one over the other. A lack of incentive creates objectivity, and objectivity is necessary for making intelligent investment decisions.

That said, here's a breakdown of what the general CAPS community thinks about the two shippers. Not surprisingly, it appears to oppose Wall Street's thinking.

Company

CAPS Stars

No.  of Bulls

No.  of Bears

% Bulls

% Bears

FedEx

***

2034

173

92%

8%

UPS

**

1292

210

86%

14%

FedEx not only has a much larger Foolish following, but it also seems to be the better pick in the eyes of the community. Many Fools have sounded off with their praise of the company.

One such Fool, Patrick6k, takes a long-term view of FedEx: "With the evolution of retail moving more and more to the online venue, away from the brick and mortar dinosaurs, Fedex is a market leader and poised to grab the lion's share of the revenue."

Some are not quite as optimistic. Never at a loss for words, HollywoodDan shares with the community his belief that all shippers are in trouble:

I gotta figure gadgets like the Kindle, combined with soaring fuel prices lead to people doing much more business digitally, bypassing this company all together. No doubt this is a great company, but it's a digital future and people will go where costs are lowest. I figure at best they beat the S&P by a small amount, at worst, they have a long, slow decline.

Winner: FedEx.

This Fool's opinion
Wall Street leans toward UPS, while the Foolish individual investor community likes FedEx more. Though I tend to agree with Fools over the Wall Street Wise, I think that either choice is great. Both of these companies have been around for a very long time, and although they are going through difficult times, our economy's need to ship goods will not wane. Could they fall farther before they rebound? Certainly. Will they survive the high fuel costs and emerge better and more efficient? You'd better believe it.

So sit back, take a long-term approach, and collect the dividends in the interim.

Related commentary:

United Parcel Service is a Motley Fool Income Investor pick. FedEx is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Ryan Freund, who is ranked 40th out of more than 110,000 CAPS members, does not own any shares in any of the companies listed. The Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 27, 2008, at 12:26 AM, guntherbadoo wrote:

    Maybe the Wall St analysts actually know something about the two businesses, which is why they prefer UPS. I have years of experience shipping with UPS, and have always considered them a brilliantly run company. They may be a bit less profitable due to fuel costs, but they have a very accurate idea of their costs to ship to each address in the US, after exhaustive time studies a few years ago. Their drivers are on a route for years - a single route is a career for some. We have gotten to know our drivers over the past 28 years, and the level of service we get is remarkable.

    Contrast that with Fedex, who requires their drivers to buy their routes. The successful ones buy several routes and hire drivers, who seem to be disposable as far as Fedex is concerned. The route owners themselves come and go with regularity, because it is hard to make good money, and as independent contractors they receive none of the generous benefits provided by UPS. The result is an abysmal quality of service.

    UPS has one of the best information systems I have seen in any business. I started to add Fedex service, and stopped the process largely because of their cumbersome shipping software.

    As a volume shipper, I get discounts from UPS that make my rates comparable with Fedex.

    Nonetheless, I would not buy UPS stock. It is a stable, mature company whose stock has way too little volatility ever to show decent growth. UPS has traded in a narrow range since it went public, and unless something explosive happens, good or bad, probably will never leave that range.

    Fedex, on the other hand, went public as a young company, when, like all small, growing businesses, the adjusted stock price would normally be very low; thus leaving room for a long, steady climb over decades. I think it is likely, however, that as a mature business, fedex may have left its stock growth era. Another good example of this pattern: Microsoft. A new dollar in MSFT is dead money. Its days of stock price growth are over.

    So - neither Fedex nor UPS are good investments.

    On a statistical basis, I suppose CAPS is accurate if you say so, but the thinking, I have observed, is notably shallow, as is often that of MF commentators.

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