We recently compiled a list of the 7 Best Beaten Down Stocks to Invest In. In this article, we are going to take a look at where United Parcel Service, Inc. (NYSE:UPS) stands against the other beaten down stocks.
The equity market is on the cusp of a significant boost as the U.S. Federal Reserve joins other global central banks in cutting interest rates. While stocks have rallied for the better part of the year, as depicted by the S&P 500 gaining more than 17% year to date, three 25 basis point cuts by the Fed could send stocks even higher.
A lower interest rate environment is what the equity markets need; sentiments have taken a significant toll in recent months amid growing concerns about economic growth slowdown. With borrowing costs expected to decrease, companies should access cheap capital to enhance operations, generating more shareholder value.
READ ALSO: Billionaire Carl Icahn’s Top 10 Stocks and 14 Best 52-Week High Stocks to Buy According to Short Sellers.
Some of the best beaten-down stocks to invest in would be some of the biggest beneficiaries, especially if their core operations depend on the interest rate environment. According to Standard Chartered Chief Investment Officer Manpreet Gill, Federal Reserve easing should support stocks as the U.S. economy inches closer to a soft landing.
“Our baseline is still very much that a [U.S.] soft landing is achievable… It almost becomes a little bit more binary, because as long as we avoid that downside risk, equity earnings growth is still very supportive, and we’ve had sort of the positioning clean out in the recent pullback. And I think rate cuts, or at least expectation of those, really was the last piece markets were looking for. So on balance, we think it’s a positive outcome,” Gill said in an interview with CNBC.
As the monetary policy environment is poised to improve, the economic climate should receive a boost to support the overall equity market. Consequently, now would be the best time to pay close attention to the seven best-beaten-down stocks trading close to their 52-week lows. These are stocks well poised to outperform the overall market, their valuation having taken a significant hit.
While valuations in the equity markets, especially the tech sector, have gotten out of hand amid the artificial intelligence frenzy, stocks still offer a high-risk reward opportunity backed by solid underlying fundamentals. Similarly, while financial services sector stocks would be under pressure due to interest rates coming down, software information technology services and payment companies would be some of the big winners.
“We expect [sales] growth to accelerate through the remainder of the year with 5.5% growth in [second half] from 5.0% in [first half], driven by a progressive recovery in I.T. Services, having reached a trough of -2.7% organic growth in [first quarter] and finishing the year with +0.7% growth in [fourth quarter] as discretionary spend recovers,” said Bank of America analysts led by Frederic Boolean in a research note to clients.
Similarly, soaring geopolitical tensions in the Middle East and the uncertainty around the upcoming U.S. election also present an opportunity for investors in the market. Defense stocks offer an opportunity to diversify in anticipation of any market downturn.
Defense stocks are becoming increasingly popular, especially among fund managers at a time of soaring industry profits. Similarly, the stocks continue to outperform the overall market owing to higher defense spending as the government responds to soaring geopolitical risks.
On the other hand, there is also the possibility of the equity market rally stalling even with the Federal Reserve initiating rate cuts. If the cut comes in response to slowing growth, it could take some time before the economy returns. In such a scenario, it would be wise to bet on the best-beaten-down stocks that are well-positioned to remain resilient amid a challenging environment.
Our Methodology
To make our list of the best beaten down stocks to invest in, we first made a list of stocks trading near their 52-week lows (0-5%) range. We checked the hedge fund sentiment around 15 stocks with the largest market caps and then selected the 7 stocks that were the most popular among hedge funds. We ranked the stocks in ascending order based on the number of hedge funds that own stakes in them, as of Q2 2024.
At Insider Monkey, we are obsessed with 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)
52 Week Range: $123.12 – $172.75
Current Share Price: $128.55
Number of Hedge Fund Holders: 44
Market Capitalization as of September 3: $110.11 Billion
United Parcel Service, Inc. (NYSE:UPS) is a freight and logistics company that provides shipping services in the U.S. and across the globe. It offers international air and ocean freight forwarding, post-sales, and mail and consulting services.
It is one of the best beaten-down stocks to invest in as it is well-positioned to benefit from an improved macroeconomic environment on the U.S. central bank cutting interest rates. While its underperformance has everything to do with fluctuations in shipping demand and pricing, things are improving amid shipping volume growth in the U.S.
Domestic shipping volume increased by 1% in Q2 compared to the previous year, marking the first positive outcome in nine quarters. There was also a rise in demand across sectors such as air cargo and global export markets, which is seen as a positive sign. The business anticipates a wider recovery in the latter part of the year, accompanied by an improvement in the operating profit margin.
While United Parcel Service, Inc. (NYSE:UPS)’s second-quarter earnings totaled $1.79, missing estimates of $1.98 a share, they are poised to receive a boost heading into year-end. Revenues totaled $21.8 billion, missing estimates of $22.2 billion.
The logistics company raising its full-year revenue forecast to $93 billion from the previous forecast of between $92 billion and $94.5 billion affirms improving business conditions. United Parcel Service, Inc. (NYSE: U.P.S.) plans to accelerate growth by expanding its footprint in Mexico with plans to acquire small package provider Estafeta. It also plans to enhance its logistics services for the healthcare sector and small and medium-sized businesses.
The deep pullback close to 52-week lows has left United Parcel Service, Inc. (NYSE:UPS) trading at a price-to-earnings multiple of 17, much lower than the average P/E of 26 for the industrials. This means that the stock is trading at a discount with solid revenue growth prospects on robust underlying fundamentals.
According to Insider Monkey’s database, the number of hedge funds with stakes in United Parcel Service, Inc. (NYSE:UPS) increased from 43 to 44 by the end of June.
ClearBridge Investments, an investment management company, released its second quarter 2024 investor letter. Here is what the fund said:
“Our industrial holdings weighed on relative performance as we are more exposed to transports such as “less than truckload” provider X.P.O. and parcel delivery company United Parcel Service, Inc. (NYSE:UPS), which are struggling with weak volumes during the post-COVID freight recession. With industry volumes down to pre-COVID levels and strong pricing power in the LTL space in particular, we believe that the next upcycle will prove to be very strong for earnings. As a result, we added to X.P.O. in the quarter while reducing our position in UPS on concerns that industry capacity remains excessive. Meanwhile, we have less exposure to electrical equipment stocks, which have been rewarded by views that they will benefit from the buildout of A.I. data centers.”
Overall UPS ranks 5th on our list of the beaten down stocks to buy. 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, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.