Up on UPS

01/02/2004 12:00 am EST


Chris Johnson

Editor, The Winning Edge

Chris Johnson is managing quantitative analyst for Schaeffer's Investment Research.  He oversees a team of analysts for the firm's trading department. Here, he applies his expertise in quantified sentiment and the firm's proprietary Expectational Analysis, to select his top pick for 2004, United Parcel Services.

"After successfully integrating itself into retail shipping, United Parcel Service (UPS NYSE) roars into 2004 with the announcement of large capital expenditures on aircraft and other equipment to continue building the fundamentals of their business.  This, as they continue to grab market share from main competitor FedEx. With improvements to the company’s fundamentals under way, the share price of UPS has also taken off as the stock recently broke through its long-time resistance at $65.  The stock now trades well above its key long-term moving averages signaling healthy technical activity for the shipping giant."

"Nonetheless, investors continue to show cautious and even pessimistic outlooks for the company as a number of Schaeffer’s sentiment gauges reflect.  Currently, the Schaeffer’s Open Interest Ratio for UPS falls above 1.0, meaning that there are more puts open on the company than there are calls.  This number ranks in the top one percent for the year, meaning that option investors have not displayed this much skepticism towards UPS in the last year.  Another gauge of sentiment, the short interest ratio for the company, currently weighs in at a hefty reading of 9.8, indicating that short sellers have been very active on the stock and that the potential for a short covering rally exists. Overall, this combination of positive fundamentals, positive price activity and negative sentiment fits the bill for a stock poised to outperform according to our Expectational Analysis approach."

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