How to tell how well an economy is fairing

Research believes both the U.S. and the global economy are
likely to show accelerating growth trends over the next year. Large globally diversified and vertically integrated
transport and logistic companies like FedEx and United Parcel Service
(UPS) are usually among the first to see improving economic trends, since
these companies operate in every facet of the U.S. and global economy.

For example, when inventory restocking begins, or when consumers
buy computers or eBay items or books from Amazon.com, or when a
manufacturer orders parts, or in many other situations through the
global supply chain, FedEx and UPS are among the companies that fulfill
those orders. As such, they have a broad view into the global economic
picture. And Jim Corridore, an S&P equity analyst, thinks they are starting
to see improving trends.

In addition, due to the geographically
diversified nature of these two
particular companies, S&P Equity
Research thinks they are likely to
continue to see growth in Asia and
developing markets. Corridore
thinks this geographical diversification
could provide avenues of revenue
growth even if the United
States and Europe do not recover as
fast as expected, providing a measure
of protection against a longer
recovery timetable. The two companies
also have a pretty wide moat,
says Corridore. In the United States,
they are the only two companies that
provide door-to-door air express and
ground delivery. Globally, they compete
with very few competitors,
including DHL, which recently
retreated from the U.S. market. Of
course, they also compete with each
other, with price competition cropping
up from time to time as the companies attempt to take each
other’s market share.

Both these companies could show
strong growth in revenues and earnings
over the next year, says
Corridore, who thinks the stocks are
likely to benefit from the improved
earnings he foresees, along with
improving investor sentiment on the
industrials sector as good economic
news comes in.

Another reason he thinks the large
scale logistics companies are likely to
do well in the coming months is the
benefits he sees of their owning their
own fleet of planes and trucks at a
time when trucking, ocean, and air
cargo carriers are raising prices
sharply. Though they do not own
cargo ships, FedEx and UPS utilize
their own fleets of planes and trucks.

This practice, he says, should allow
for sharp improvement in operating
margins for both companies if volumes
and pricing continue to
improve as the U.S. and global economic
growth forecasts get stronger.
Source: S&P Equity Research


Saverio Manzo
www.saveriomanzo.com