We recently published a list of 7 Best Delivery Stocks To Invest In Now. In this article, we are going to take a look at where United Parcel Service Inc. (NYSE:UPS) stands against other best delivery stocks to invest in now.
An Overview of the Delivery and Courier Industry
The delivery and courier industry is diverse, encompassing a wide range of services that connect businesses and consumers through various shipping methods. Parcel delivery services are a major component, with companies offering both domestic and international shipping options, driven by the rise of e-commerce.
Another significant segment is food delivery platforms. These platforms connect hungry customers with local eateries, creating a new business model that thrives on convenience. Overall, the delivery industry is evolving rapidly, with diverse players working to meet the growing expectations for speed and reliability in shipping services.
According to Zion Market Research, the global on-demand delivery market was valued at $15.19 billion in 2023. Looking forward, the market is expected to grow at a compound annual growth rate (CAGR) of 20.90% during 2024-2032 to reach $83.82 billion by the end of the forecast period. In 2023, the Asia-Pacific region led the market in revenue and is projected to maintain its dominance throughout the forecast period.
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This growth is fueled by increasing consumer expectations for fast and reliable delivery services, particularly same-day and next-day options. Experts highlight that the demand for quick deliveries has led to substantial investments in last-mile delivery solutions and advanced technologies, such as automation and artificial intelligence (AI).
In 2024, consumers have continued to prioritize free and fast shipping for their online orders, according to recent data from Digital Commerce 360 and Bizrate Insights. A survey of 1,013 online shoppers revealed that 81.34% consider free shipping their top priority when receiving deliveries. Fast shipping follows closely, with 68.41% of respondents highlighting its importance. Additionally, 55.68% of consumers emphasized the need for retailers to keep products in stock and ready to ship.
AI and automation are key trends that are significantly transforming the delivery services industry, making operations more efficient and responsive to consumer demands. For example, companies like DHL Express have introduced the DHLBot in Singapore and South Korea. The DHLBot is an AI-powered robotics arm that can sort over 1,000 small parcels per hour with 99% accuracy. This technology not only speeds up the sorting process but also reduces labor costs and minimizes errors, allowing for quicker deliveries.
As the industry evolves, it is clear that AI and automation will play a crucial role in shaping the future of delivery services.
Methodology
To compile our list of the 7 best delivery stocks to invest in now, we used the Finviz and Yahoo stock screeners to find the largest delivery companies. We also reviewed our own rankings and consulted various online resources. From an initial pool of more than 20 delivery stocks, we focused on the top 7 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s database of 912 elite hedge funds. The 7 best delivery stocks to invest in now are ranked in ascending order based on the number of hedge funds holding stakes in them as of Q2 2024.
Why do we care about what hedge funds do? 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
United Parcel Service Inc. (NYSE:UPS) is one of the world’s largest package delivery companies and a leading provider of global supply chain management solutions. With one of the largest airlines and fleets of alternative fuel vehicles, UPS delivers millions of packages every business day to customers in over 200 countries and territories. In 2023, the company successfully delivered an average of 22.3 million packages daily, totaling 5.7 billion packages for the year.
The company is making significant strides in its growth strategy. In July, United Parcel Service Inc. (NYSE:UPS) announced plans to acquire Estafeta, a leading small package provider in Mexico. This acquisition will enhance UPS’s logistics capabilities and provide customers with better access to global markets, especially as many businesses are shifting their manufacturing closer to the United States.
In addition to the acquisition, UPS was recently awarded a significant air cargo contract by the United States Postal Service (USPS). The company is onboarding the new air cargo business, which is expected to be fully implemented before the peak shipping season, making UPS the primary air cargo provider to USPS.
In the second quarter of 2024, United Parcel Service Inc. (NYSE:UPS) reported consolidated revenue of $21.8 billion, reflecting a slight decline of 1.1% compared to the previous year. Although the company missed earnings expectations, it is actively pursuing strategic initiatives aimed at improving operational efficiency and driving future growth. A key part of this strategy is the “Network of the Future” initiative, which focuses on optimizing and automating its core integrated network to lower costs.
As part of this initiative, UPS has already completed 35 operational closures in the first half of 2024, with plans for additional closures in the second half. United Parcel Service Inc. (NYSE:UPS) is automating various tasks, including the dispatch process for package cars and feeder trucks. These efforts have led to a 26% reduction in staffing so far this year.
These efforts are designed to streamline operations and enhance productivity, positioning UPS for better performance in a challenging market environment.
In the Q2 2024 earnings call, the company’s management announced plans to achieve approximately $1 billion in savings by the end of the year through various strategic initiatives. United Parcel Service Inc. (NYSE:UPS) also announced that it has entered into an agreement to sell its Coyote Logistics business unit to RXO, which is expected to free up cash that was not included in the original guidance. This sale will allow UPS to restart its share repurchase program, with plans to buy back about $1 billion in shares annually, including roughly $500 million in 2024.
These efforts reflect the company’s commitment to enhancing its financial flexibility and focusing on its core business operations.
As of the second quarter of 2024, UPS was held by 44 hedge funds, according to Insider Monkey’s database.
Artisan Partners stated the following regarding United Parcel Service Inc. (NYSE:UPS) in its “Artisan Value Fund” first quarter 2024 investor letter:
“United Parcel Service Inc. (NYSE:UPS) 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 UPS at an undemanding valuation of less than 11X our view of normalized earnings. UPS 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 UPS can focus on regaining lost volume and improving its cost structure.”
Overall, UPS ranks 6th on our list of best delivery stocks to invest in now. While we acknowledge the potential of delivery companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. 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.