What happened

Shares of FedEx (NYSE:FDX) traded down more than 5% on Tuesday, the second straight day the stock has significantly underperformed the S&P 500. The potential ramifications from the coronavirus are weighing on shipping stocks, and FedEx appears particularly at risk.

So what

The markets have been worried about slowing freight volumes due to the spread of COVID-19, the disease caused by the novel coronavirus, and on Tuesday got some evidence those concerns are justified. The Cass Freight Shipment Index, a closely watched gauge of shipping activity, fell 9.4% year over year in January. The post-holiday season and the Chinese New Year are typically the low point for international volumes for the year, but the 2020 deceleration is steeper than usual.

A FedEx cargo plane sits on the tarmac.

FedEx shares remain grounded. Image source: FedEx.

The slowdown comes at an inopportune time for FedEx, which struggled in 2019 due to trade wars and a slowdown in China. The company was facing revenue headwinds at the same time it was investing billions to increase its U.S. capacity.

FedEx had hoped to see some of the benefit of that investment trickling into results starting this year. Given the volume slowdown that has already occurred due to virus-related shutdowns in China, and the growing uncertainty as the virus spreads into new markets, it now seems unlikely FedEx's recovery will come as quickly as investors had hoped.

Now what

It's impossible to know for sure the ultimate impact of the coronavirus on global trade, but it does seem likely that FedEx and other transport companies are in for a difficult first half of 2020 at least. That said, I don't believe the virus will end up curtailing the long-term growth trend for shipping. With that in mind, FedEx is beginning to look oversold.

The progress FedEx was making last year investing for growth and cost reduction is real and substantial, and the company's move to year-round delivery on weekends should help it improve efficiencies. FedEx's fiscal quarter is coming to a close and when the company reports on March 19 it is likely to be weighed down by the impact of the virus, but expectations for that quarter are already running low.

For investors willing to endure a rough patch of road, FedEx is an intriguing stock to watch at these levels.