Friday, June 6, 2008

UPS & the flat world

Always the value investor, always the contrarian......"Buy stocks when there is blood in the streets", "You want to be buying stocks when everyone else is selling'. Well today was one of those days when the stock market was all of a sudden a bad idea for many. I was actually down about $900 today! Good day to keep the eyes on the old income from investments chart. It didn't budge one dollar.

One stock that I always keep an eye on, but never seems to get cheap enough for my liking is United Parcel Service (UPS). I wanted to mention UPS today for 2 reasons, one that I found an article today that sums up what I'll call the 'kicker' on why I like UPS going forward. Another way to put this is that I see this trend as the catalyst for the growth of UPS in the years to come. One word: LOGISTICS. Basically they are doing supply chain and operations management for other firms. I first read about this trend in the book 'The World is Flat' by Thomas L. Friedman. I see this move by UPS as pure genius and a service that will pay huge dividends as the global economy evolves, and only gets more attractive as energy prices rise. If you think UPS is simply a package delivery firm, you are dead wrong. Needless to say that I wouldn't care much about UPS unless they were a solid raiser of dividends and a consistent grower of earnings, with a huge moat and brand - which they are.

Another reason I brought up UPS today goes back to the opening paragraph of this post. When do you want to be thinking about buying a company that ships packages for profit? Perhaps a good time would be when oil touches $138/barrel and every economist and his dog sees black gold going to $200/barrel. It seems that these days that the biggest bull on oil wins.

More on 'Brown' in posts to come....


pitz said...

As airline capacity shrinks, UPS should be able to increase the yields on its airline operations and increase fares.

Sarlock said...

Like all transportation companies, UPS will be able to pass on higher oil prices to its customers after a certain amount of time (short term pain, long term gain) and be well positioned to take advantage of the increased demand for coordinated logistics from globalized companies seeking a way to reduce transportation costs.

Sami said...

I like the idea, logistics is the way to go. but couple points for your consideration:

UPS is assets heavy, if you want to capitalize on logistics in "flat world" you want to buy what is called third party logistics which hold no assets yet they capitalize on the same trend. They have better margins and return on investments. UPS has 3PL but part of huge operations with a lot of assets. saying that ups has one of the best operations by far than fedex. their management is top notch. i would buy ups over fedex any day.

one risk is globalization is reversible. oil prices are high that can make goods better sourced from closer destinations, small risk though as supply chain grow in complexities that makes them too hard to unwind.

Anonymous said...

One other interesting factor with UPS, is they are beginning to finance the trade.

Like banks normally do, they hold onto the assets (the goods) and will discount receivables and such.

Can be a good money maker, or could blow up in their face. But it is innovative approach to be the universal logistic company.

I love the name, and think it will excel in future. It's moat is so big, large Euro firms like DHL use them as well (to fill their gaps etc.)

Dividend Growth Investor said...

If the world is truly flat, then retiring in a place that's cheaper than US and Canada would be only a thing of the past :-(

This was part of my retirement strategy, save as much as possible, invest in the best dividend growers, generate a nice growing income stream and retire in a country that's cheaper.