Does United Parcel Service, Inc. (UPS)’s Tech Prowess Set It Apart From Other Freight Stocks?

We recently compiled a list of the 11 Best Freight Stocks To Buy Now. In this article, we are going to take a look at where United Parcel Service, Inc. (NYSE:UPS) stands against the other freight stocks.

The Red Sea Crisis & Shipping Challenges

The Red Sea accounts for 30% of global container trade via the Suez Canal. According to a report by JP Morgan, the Houthi attacks have disrupted the entire supply chain, forcing companies to reroute around Southern Africa, adding 4,000 miles to every journey. Rerouting will increase transit times by almost 30% and global container shipping capacity will decline by almost 9%. The report suggests that spot rates have soared amid the crisis. Spot rates in January 2024 from China to the US West and East Coast rose by 140% to 120% compared to November 2023. Jamie Dimon's investment bank expects trade disruptions to add 0.7 percentage points to global core goods inflation, and 0.3 percentage points to overall core inflation.

On May 6, Reuters reported that Maersk, the shipping giant, predicted that the crisis would cut the industry's capacity by almost 20% between Asia and Europe in the second quarter of 2024. Large shipping companies have diverted routes around Africa, leading to a rise in freight costs and shipping time. According to the Danish shipping group, shipping costs between Asia and Europe are now 40% higher for every journey. While experts expect the crisis to slow down before the end of 2024, the uncertainty and risk attached to the future of shipping are costing major shipping companies. To counter bottleneck situations and fuel faster sailing, companies are increasing their shipping capacity. The company has so far released over 125,000 additional containers. You can also read our piece on the most advanced countries in logistics.

Technology Disrupting the Freight Industry

While the Red Sea crisis is a major headwind for the freight industry, technological advancements will be monumental for the sector's growth. Companies like GXO are using technology to disrupt the industry. You can also take a look at the richest billionaires in the logistics industry.

On May 14, the company deployed robots for a global sporting goods retailer in France. The robotics solution was designed to reduce the order processing time and improve response time to seasonal volume changes. The solution is deployed across 12,000 square meters at the site. The solution includes 500 autonomous mobile robots that manage 70,000 bins on 5.5-meter tall storage racks. In 2023, the company increased its automated and tech systems by 50% and is actively working to integrate machine learning and artificial intelligence. Here are some comments from the company's Q1 2024 earnings call:

"Automation is a key tenant of our value proposition. And we’re the first mover in trialing the integration of cutting-edge automation like humanoid and AI inside the four walls of the warehouse. We’ve recently introduced some exciting innovations in AI. First, the warehouse optimization pilot we mentioned last quarter was a success driving a productivity increase of approximately 15%, and we’re rolling out the app across our sites as we speak. Second, we’ve recently piloted a proprietary workforce management tool, which we developed in-house. Our tool makes more than 15 million decisions per minute to streamline inventory replenishment and adding about 7% of capacity at no additional cost. We will be deploying this solution broadly across our operations starting this year."

Now that we have studied the freight industry, let's discuss some of the best freight stocks to buy now. You can also read our piece on the best transportation stocks to buy.

Our Methodology

To come up with the 11 best freight stocks to buy now, we went over our own rankings, similar rankings on the internet, and three transportation ETFs. We created an initial pool of 30 freight stocks and selected the top 11 with the largest number of hedge fund holders as of Q1 2024. Why are we interested in 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)

Number of Hedge Fund Holders: 43

United Parcel Service, Inc. (NYSE:UPS) ranks seventh on our list of the best freight stocks to buy now. United Parcel Service, Inc. (NYSE:UPS) is a global shipping and logistics company based in the United States. The company offers freight forwarding services as part of its supply chain solutions. The company offers air freight services to over 220 countries, moves ocean freight across 2,300 lanes, and offers ground-less-than-truckload freight.

43 hedge funds disclosed having stakes in United Parcel Service, Inc. (NYSE:UPS) at the end of Q1 2024. The total value of these stakes amounted to $969.77 million. As of March 31, Ken Griffin's Citadel Investment Group is the largest stockholder in the company and has a stake worth $433.48 million. As of March 31, United Parcel Service, Inc. (NYSE:UPS) has a cash flow from operating activities of $3.3 billion, with a free cash flow of $2.3 billion, and a strong financial profile that can pay high dividends yielding 4.71%. In the first quarter of 2024, XPO, Inc. (NYSE:XPO) returned $1.3 billion in dividends. Here are some comments from Artisan Partners Q1 2024 investor letter:

"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."

On April 23, United Parcel Service, Inc. (NYSE:UPS) reported market-beating earnings for the fiscal first quarter of 2024. The company reported revenue worth $21.7 billion and logged earnings per share of $1.43, beating estimates by $0.09. Analysts expect the company to grow its earnings by 18.68% in the next 12 months and by 6.8% over the next five years.  In 2024, the company expects to generate almost $3 billion in global DAP revenue. The company's tech prowess sets it apart from its competitors. The company has achieved a 74% reduction in pickup concerns and a Net Promoter Score of 48 using its new driver dispatch technology. Since April 2023, international customers using its next-gen brokerage solution have reported 40% fewer customer brokerage holds. In 2024, XPO, Inc. (NYSE:XPO) expects to generate a consolidated revenue between $92 to $94.5 billion and a consolidated operating margin ranging between 10% to 10.6%.

Overall UPS ranks 7th on our list of the best freight stocks to buy. You can visit 11 Best Freight Stocks To Buy Now to see the other freight stocks that are on hedge funds’ radar. 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 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.