Which Is The Better Bet - FedEx vs. UPS?

Every investor that is worth his salt looks for the best companies in which to invest, especially when they see two competing companies in the same industry. Fortune 500 companies present investors with an opportunity to reap big returns when it comes to purchasing stock.

Two of the biggest companies on that prestigious list – and two that are leading the global shipping industry – are United Parcel Service, better known as UPS UPS and FedEx FDX. These two shipping juggernauts are virtually neck-and-neck when it comes to its customer numbers and market position.

But which is the better stock investment? Between FedEx and UPS, which would you rather add to your portfolio?

UPS has been posting better quarterly results than FedEx over the last twelve months, but what many people don’t realize is that doesn’t necessarily equate to a better stock investment. UPS is the largest parcel delivery corporation on the planet and has enjoyed a stellar 2013 after a strong start following the 2012 holiday buying season. FedEx, on the other hand, is the world’s largest international air shipment company, but has seen recent cost-cutting measures and a down market in Asia cause its recent quarterly profits drop more than 30 percent.

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But the global economic downturn has proven challenging for both companies. China is showing incredibly slow growth as of late and Europe is ensconced in economic turmoil, which is having a detrimental effect on consumer demand around the world. Additionally, rising fuel prices have caused companies to shift from shipping by air to shipping by sea, which is hitting both UPS and FedEx very hard, although more so the latter since FedEx has a higher stake in the international air shipping market.

But while FedEx has been hurting in the international shipping game, UPS hasn’t met Wall Street’s performance expectations despite a strong showing in 2013. The U.S. economy having experienced minimal growth this year hasn’t helped matters either. But the holiday season is a time when this industry in general and these two companies in particular always see a considerable uptick. Consumer spending seems to be relatively strong. It stands to reason that both UPS and FedEx will have a Merry Christmas and at least a happy first part of the new year.

But in terms of valuation, FedEx is likely the better bet. UPS trails price-to-earnings and therefore trades at a premium. FedEx conversely has a price-to-earnings ratio that is significantly discounted for industry peers as well as a stock price that is nearly 20 percent less than its five-year average.

Long-term growth also looks more promising for FedEx with a five-year earnings growth outlook expected to be well over 12 percent. UPS will likely see just over 9 percent growth over the same period. And for what it’s worth, the average analysts’ price target is $91 and $116 for UPS and FedEx, respectively.

So which is the better stock investment? With UPS handling the global economic slowdown better than FedEx but FedEx being seen as the better low-buy, the answer depends on which investor you ask.