Today's Buy Opportunity: FedEx

Welcome to "11 O'Clock Stock." Here at Fool.com, we'll be finding a new great stock at 11 a.m. ET every weekday for 50 days. Better yet, we're so confident in the picks that we're investing $50,000 of the Fool's own money in them! To hear more about the series, click here to see a video from Motley Fool co-founder Tom Gardner. Can't make it at 11 a.m. ET? Come back to Fool.com, and we'll have the article in our Top Stories section 24 hours a day.

This summer I made my 100th monthly stock pick in Motley Fool Stock Advisor. Every month since March 2002 (a pretty bad market overall) I have picked a stock that I believed would beat the market over the succeeding three to five years. The average performance of my 100 stock picks is, as of the market's weekend close, +85.6%. The market's directly comparable average over the same period: minus one percent.

How am I beating the market by 86 percentage points -- up and down my list of 100 stock picks? By keeping three simple principles in mind, all of which are present in today's 11 O'Clock Stock, FedEx (NYSE: FDX  ) .

Fast facts on FedEx:

Market Capitalization

$25.4 billion

Industry

Logistics

Revenue (TTM)

$34.7 billion

Earnings (TTM)

$1.2 billion

Source: Capital IQ, a division of Standard & Poor's.

1. I buy excellence, and it's never cheap.
For 16 years picking stocks online in Fooldom, I have aimed above all at finding the world's best growth companies. Growth doesn't have to be sizzling; the key is to find sustainable growth. I'm looking for companies generating 15%-40% sustainable growth in sales and earnings. The key here is that these stocks never look cheap. Amazon.com (Nasdaq: AMZN  ) looked crazily overpriced when I bought it in September 1997 -- at what is now a split-adjusted price of $3 and change. Marvel was riding the hype wave of the first Spider-Man movie in the summer of 2002 when I recommended it. It didn't look cheap even after selling off that summer, but now "overpriced" Marvel (now, Disney (NYSE: DIS  ) ) has made investors a 16-bagger over a period of time that some people are calling a lost decade; I call it an awesome decade. So, buy sustainable growth, buy greatness, and fully expect it to look expensive. 

2. I go where the trends favor me.
The rapid pace of technology and productivity growth is the great story of our time, recession or no. Even during bad economic periods as we've had for almost four years now we have seen ridiculously interesting and incredible gains in technology; iPhones are now doing video chat -- the iPhone itself was only born three years ago. Don't let the boo-birds and the fearmongers scare you out of looking ahead at more incredible technology growth and getting invested right along with that. Figuring out the Internet before the rest of the investment world did was lucrative; how much better off might you be if you figure out OLED displays, the coming personal genomics revolution, or the next great emerging market before most of the rest of the world does? One thing is for sure: There will be more great technological gains and surprises. The secret to getting rich on these isn't much of a secret: It's that you actually have to invest in these places ahead of time.

3. I hold longer than just about anyone I know, which includes 100% of Wall Street.
Want a simple tip on how to beat the market? Zoom out. Most investors, and most all of the professional investment world, are looking at what happened on the market today, or what the next quarter's earnings will be. And with high-frequency trading and other frenetic enticements like real-time quotes, the collective focus is only getting narrower and narrower. A time-honored way to generate investment profit is to go against the grain, to see the same data through a different-colored lens. These days, it's as simple as just zooming out -- looking a year ahead, or three, or five. Because almost no one else is.

Back to FedEx. Trends favor an explosion over the next 25 years in global trade, I believe that's true even if the "new normal" is tepid GDP growth. The Internet and globalization have made the exchange of hard goods easier than ever before. FedEx is the world leader -- over ground and through the air -- of delivering those goods. FedEx is peerless in terms of its consistency, reputation, and dependability of getting goods from one place to another overnight. All that e-commerce we're increasingly doing these days continues to have to be delivered.

I first recommended FedEx in 2003. It remains an open active recommendation at Motley Fool Stock Advisor -- and it's up an OK-but-not-so-great 41% for us so far, ahead of the S&P 500's directly comparable gain of 16%. Consistent with what I said, I'm still holding (I own the stock, too). FedEx is supposed to earn $5 a share in the year ahead, putting the stock at about 17 times earnings -- again, consistent with what I said above, it doesn't look cheap.

But here's where we zoom out: The company has an almost unassailable competitive position, and will drive and profit from the boom I'm expecting in global e-commerce and trade. With a market cap today of only $25 billion, FedEx looks to me like it can double our money over the next five years.

Previous recommendations -- click here for full list of recommendations and performance:

Come back to Fool.com Tuesday for another great stock pick. There's plenty more great stock advice, and you can find video of each day's recommendation as well! To see the performance of previous recommendations, click here.

"11 O'Clock Stock" is sponsored by Motley Fool Stock Advisor. The Motley Fool will wait at least 24 hours after this publication before purchasing shares of FedEx. To see an FAQ on "Eleven O'Clock Stock," click here

David Gardner owns shares in Disney, Amazon, and FedEx. Walt Disney is a Motley Fool Inside Value selection. Amazon.com, Walt Disney, and FedEx are Motley Fool Stock Advisor picks. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (13) | Recommend This Article (50)

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 August 16, 2010, at 11:53 AM, Melaschasm wrote:

    The bad news: FedEx has a high P/E, their revenue and profits took a hit with the recession.

    The good news: FedEx is likely to grow as the economy recoveres. The trend towards internet retail is likely to continue for a long time, which provides added volume and profits for FedEx.

    A double dip recession would likely provide a lower entry point for FedEx. Waiting to buy FedEx might result in missed profits, if we are at the begging of economic recovery.

  • Report this Comment On August 16, 2010, at 12:48 PM, cmbourne wrote:

    How do think Fedex compares with UPS?

  • Report this Comment On August 16, 2010, at 2:11 PM, Ntoxiphied wrote:

    UPS isn't even close to as enticing of an investment IMO. Poor management and execution plague UPS. Not to mention the union issues that as of yet haven't been a an issue for FDX. The people steering the ship will make a big difference in the logistics sector in the current climate. FDX has become leaner and meaner well UPS has fizzled.

  • Report this Comment On August 16, 2010, at 3:14 PM, take2bank wrote:

    I heard Fedex workers are trying to unionize.

  • Report this Comment On August 16, 2010, at 3:40 PM, TMFSpiffyPop wrote:

    The last 10 years: S&P -25%, UPS +10%, FDX +100%.

    Thanks for the comments. --David

  • Report this Comment On August 16, 2010, at 5:03 PM, BurntTiger wrote:

    would pitney-bowes (PBI) do well also? I know the stock took a huge hit with profits down 40%-ish.

  • Report this Comment On August 16, 2010, at 8:12 PM, neamakri wrote:

    I was in the Post Office last week. Guess who the Post Office uses for overseas deliveries?

    Yes; Fedex.

  • Report this Comment On August 16, 2010, at 8:26 PM, mobil4 wrote:

    The bad news is that the dividend on this stock is a joke. For an $80 investment your return is a measley 1/2 %. No Thanks.

    Mobil4

  • Report this Comment On August 17, 2010, at 12:56 AM, Rowants wrote:

    I'm happy with my investment in FedEx, and have thought about buying more, but my hangup is, who uses FedEx? I've heard rumors that all Post Office Priority Mail goes FedEx, but other than that, practically everything I ship (occasional ebay sale) or receive is either postal or UPS. I see their (FDX) trucks around alot on my way to work, but still wonder, are they mainly just for business to business customers or what? I can count on one hand the number of FedEx packages I've received in the last 5 years.

  • Report this Comment On August 17, 2010, at 1:10 AM, parkallee wrote:

    Fed-Ex Sucks! I have to deal with both UPS and FedEx all day long at my work and UPS is by far superior in all aspects. The list of typical Fed-Ex mess--ups I encounter daily is too long. Let's just put it this way: they make me say out loud 'don't ever by FedEx stock' a lot.

  • Report this Comment On August 17, 2010, at 4:18 PM, Bobmoll36 wrote:

    Long term the buys of dave are excellent. But I have limited money to invest. If I buy two each month short term I'm out of cash in a year. And so i miss Priceline. Not good is it?

    What if I sold the losers when down 8% and used the funds to buy the new choices? Would I have a better chance of enhancing the portfolio?

    I wouild not have Medco or Nucor or simpson but I'd be in on Priceline , Nike and the beer company--all winners.

    Need your input. thanks.

  • Report this Comment On August 22, 2010, at 11:30 AM, huddaman wrote:

    David,

    Could you kindly elaborate why you think you don't see a clear pepsi for Fedex coke? I didn't really understand that part, as I thought UPS and Fedex are indeed the Coke and Pepsi of shipping.

    Fedex's revenue @ around 34B is lower than UPS's @ around 45B. And UPS seems to have a higher operating margin. Having said that, UPS does look relatively pricier on a P/S basis for starters.

    I was wondering, if you could elaborate why then you chose FDX over UPS.

    Riyaz

  • Report this Comment On August 24, 2010, at 7:03 AM, foolasia wrote:

    IMHO, the recommendation doesn't offer a wide enough margin of safety and overestimates the moat that Fedex enjoys. This is a cyclical business and Fedex represents a bet that there will be a boom in ecommerce and trade and that they will profit from it. The company greatly benefits from the fact that its workers are currently non-union, not including the pilots. Given the strong push by its competitor, teamsters and workers for unionization at Fedex, the company will lose its narrow competitive advantage once they are ultimately forced to adjust to this new reality and accept unionization.

    UPS on the other hand is #1 in this industry which gives them a wider moat. With a market cap more than double Fedex's, the company also consistently generates ROE that is almost double what Fedex achieves. And its already had much experience with unionized workers.

    Foolasia

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