We recently compiled a list of the Jim Cramer’s Exclusive List of 9 YEV Stocks. In this article, we are going to take a look at where United Parcel Service, Inc. (NYSE:UPS) stands against the other YEV stocks in Jim Cramer’s exclusive list.
Recently, Jim Cramer sifted through the S&P 500 to identify stocks that satisfy his criteria: yield, earnings growth, and value. He explained the need behind the criteria:
“In a market with huge year-to-date gains, you got to get a little more selective about what you buy. Which is why I created this three-part test, also known as tripartite test.”
To navigate this market, he developed a three-part evaluation framework, which he refers to as the YEV test. Cramer explained that the first criterion focuses on yield, specifically seeking stocks that offer better returns than the current yield on the 10-year Treasury, which sits slightly above 4%. The second criterion is outsized earnings growth, meaning he looks for companies expected to exceed the 14% growth forecast for the S&P 500 next year. Lastly, Cramer seeks value, targeting stocks priced lower than the S&P 500, which currently trades at around 21 times next year’s earnings estimates.
“We want stocks with higher yields than the 10-year Treasury, meaning 4% plus. We want faster earnings growth than the S&P 500. In the aggregate, that’s faster than 14%. And we want a price-earnings multiple lower than that of the overall S&P 500, which trades at 21 times next year’s earnings, which everybody says is a little elevated.”
While Cramer acknowledged that his criteria was challenging to meet, he successfully identified nine stocks that fit the YEV model. He noted that although the Federal Reserve has created a favorable environment for investors, resulting in substantial market gains, it is crucial to exercise caution when selecting stocks.
Observing the historical trends, Cramer pointed out that October has generally been a strong month for the market, yet he reiterated the necessity of being discerning in purchases. He encouraged viewers to consider these nine stocks as the top tier within the market. He went on to emphasize:
“Now, I want you to think of them as the elite of the elite. Not many companies can give you high yields, cheap stocks, and explosive earnings growth all at the same time… Here’s the bottom line: in a market like this one, you do need to be selective, which is why we’ve fallen back on yield, on earnings and on growth and on value. Okay, now these are all things that are very hard to find right now.”
Our Methodology
For this article, we compiled a list of 9 stocks that fit Jim Cramer’s YEV stocks criteria and were unveiled during his episodes of Mad Money from October 7 to October 10. We listed the stocks in ascending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 900 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A warehouse filled with boxes of parcels, symbolizing the companies reliable logistics services.
United Parcel Service, Inc. (NYSE:UPS)
Number of Hedge Fund Holders: 44
Cramer mentioned that he has less confidence in United Parcel Service, Inc. (NYSE:UPS). He discussed the company’s higher costs damaging its earnings and briefly reviewed its performance in comparison to its peer, FedEx.
“Why don’t we start with UPS, which has been a very frustrating stock to own for the past couple of years. It’s down 43% from its early 2022 highs. Back in the summer of last year, UPS had to contend with a threat of a crippling Teamster strike. So they blinked and gave the teamsters, what a lot of people feel, is a very generous contract.
Great for the drivers, but the higher costs have done real damage on the earnings front for UPS. At the same time, it sure seems like they’re losing business to FedEx. In the past four quarters, UPS has disappointed three times, FedEx was doing fine till it had a tough last quarter. Just focusing on UPS though, these guys have lowered expectations repeatedly this year. That’s right, slashed estimates.
When the company report’s latest results in July, they delivered a sizable top and bottom line miss and slashed their guidance. Management tried to put a positive spin on things, touting a return to volume growth in the United States, but Wall Street didn’t buy it and the stock plunged 12% in a single session. Hasn’t really come back much since then. Don’t forget even the better-run FedEx reported a difficult quarter in September so it’s hard to be optimistic about UPS headed into the next earnings report in two weeks.”
While Cramer did make a note of the sinking earnings and the market’s reaction to it, he presented a bull case for the stock based on Citi analysts’ coverage of the transportation logistics sector.
“So is there even a bull case for UPS? Actually, yes, and conveniently, we got it from analysts at Citi earlier this week who initiated coverage on the transportation logistics sector starting UPS with a buy, quite surprising, and a $162 price target for what’s a $132 stock today. They point out that UPS has the highest dividend in the group with a strong balance sheet and the company’s now starting to annualize its higher labor costs. So that’s less of an issue going forward. I like that. At the end of the day, management laid out some very bullish long-term financial targets back in March and if the company hit those numbers, well, UPS could be a huge long-term winner, but I say that’s a pretty big if.
Do you really wanna bet on UPS hitting its financial targets when they’ve missed them so frequently over the last year? Normally, this is the kind of stock that would work when the Fed cuts interest rates, but I need to see some better execution before I’m willing to endorse it, and boy, I really want to ’cause I like that yield, but not yet.”
United Parcel Service (NYSE:UPS) is a leading package delivery and logistics company, offering a wide array of services that encompass transportation, distribution, contract logistics, ocean freight, air freight, customs brokerage, and insurance. It has been facing challenges for some time now, including a decline in stock value attributed to inflationary pressures, broader macroeconomic concerns, and the impact of negotiations with the Teamsters Union, which represents approximately 330,000 employees.
The company is preparing for a potential upswing in business during the latter half of the year, driven by a reduction in macro pressures and a focus on servicing healthcare and small to medium-sized enterprises. In a bid to optimize operations, it plans to lay off employees this year while simultaneously investing in new technologies and automation to improve efficiency and reduce costs.
On October 3, Wells Fargo raised the price target on United Parcel Service (NYSE:UPS) to $142 from $134 and maintained an Overweight rating. The adjustment came because the firm expects favorable trends in the third quarter, suggesting that recent pricing actions and volume growth could align with the company’s full-year guidance.
Overall UPS ranks 3rd on Jim Cramer’s exclusive list of YEV stocks. While we acknowledge the potential of UPS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than UPS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.