6. United Parcel Service, Inc. (NYSE:UPS)
Year to Date Return: -12.98%
Number of Hedge Fund Holders: 44
Package delivery juggernaut United Parcel Service, Inc. (NYSE:UPS) is turning out to be one of the worst-performing blue chip stocks in 2024, down by about 12.98% for the year. Its woes and underperformance stem from declining delivery volumes in its core U.S. domestic package market.
The volume drops are especially concerning because they followed periods of extraordinary growth brought on by the lockdowns. A slowing economy led to a decline in demand, and that growth incentivized package delivery companies to increase supply, resulting in a notable capacity surplus in 2023.
Deteriorating economic conditions have fueled the weak delivery volumes amid the high interest rates. Nevertheless, United Parcel Service, Inc. (NYSE:UPS)’s outlook should receive a boost in the U.S. Federal Reserve cutting interest, which is expected to boost consumer purchasing power, fuelling a spike in shopping trends leading to higher shipping volumes.
In the long term, lower interest rates will unavoidably promote economic expansion, which typically translates into increased packages delivered. Long-term investors who are prepared to bear the possibility of negative news in the near future may be persuaded to purchase UPS as it is trading at a discount with a price-to-earnings multiple of 14 after a significant pullback.
Likewise, UPS has proved to be a solid investment play for generating passive income, as the stock currently yields 4.84% on dividends. At the end of Q2 2024, 44 hedge funds reported holding stakes in United Parcel Service, Inc. (NYSE:UPS), with a total value of $1.31 billion.
Here is what Artisan Partners’ Artisan Value Fund said about United Parcel Service, Inc. (NYSE:UPS) in its first quarter 2024 investor letter:
“United Parcel Service, Inc. (NYSE: U.P.S.) was a Q4 2023 purchase. When we initiated our position, shares were under pressure due to concerns about its new labor contract diverting volumes and driving up costs, as well as the continued normalization of volumes following COVID-related gains. The stock moved higher after we purchased it but gave up those gains in January when the company reported weaker-than-expected shipping volumes and a decline in revenue in the prior quarter. Despite the long-term growth tailwinds from the secular shift toward e-commerce, the shipping business is still cyclical, so disappointments will happen. However, we welcomed the market’s short-term focus as it provided us an opportunity to purchase U.P.S. at an undemanding valuation of less than 11X our view of normalized earnings. U.P.S. is a good transport operation that easily earns its cost of capital, generates significant free cash, has a wide economic moat, has a strong financial profile and pays an attractive dividend yielding 4%. With the new 5-year labor agreement completed, we believe U.P.S. can focus on regaining lost volume and improving its cost structure.”
