Why I Purchased UPS

UPS is a stock I have been wanting to own for years. Except for a brief period during the financial crisis it has traded too richly for a value investor like myself. Yesterday I was finally able to purchase the shares of of UPS, a first rate company, for a value price. Here is why I believe UPS deserves to trade at a premium:

  • UPS and Fedex are a duopoly. The barriers to entry are enormous and its almost inconceivable that a third shipper would ever be able to challenge them.

  • UPS has the secular tailwind of e-commerce that should benefit them for years to come.

  • UPS trades at 12.5 times 2012 earnings estimates.

  • The drop in oil prices might help UPS exceed estimates

  • UPS has a solid history of returning cash to shareholders via dividends and share repurchases. The shares have  a dividend yield of 3.2%


Many might be wondering why I did not purchase Fedex. Historically UPS has had better free cash flow and returns more cash to shareholders.

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