Top Picks 2020: FedEx (FDX)

01/27/2020 5:00 am EST


Jason Clark

Contributing Editor, The Prudent Speculator

Jason Clark — contributing editor to The Prudent Speculator — selected Citigroup (C) as a top pick for 2019; although he still views the stock as attractively valued, given the 57%+ gain, he now looks to a leading package delivery firm as a conservative idea for 2020.

Memphis-based FedEx (FDX) is the world’s largest cargo airline and offers door-to-door package delivery services for consumers and businesses in more than 220 countries and territories. Shares of FDX were down in 2019 and have fallen more than 35% over the past two years.

There is little doubt that global trade tensions have taken their toll, with CEO Fred Smith, an outspoken critic of anti-free-trade policy, stating, “Global trade disputes were adversely affecting manufacturing in Europe and Asia, thereby slowing international shipping demand.”

Of course, FedEx stands to gain handsomely when products can move across borders freely, so the official position is not surprising.

Even though we think that many of the headwinds are outside FedEx’s control, the company still must weather the turbulence and make long-term strategic plans that it sees best for the business many years from now.

That said, we like that FDX is evolving relatively quickly (which has required near-term elevated spending), and is making strategic moves as opportunities present themselves, including things like adding 7-day service.

FedEx, under Mr. Smith’s direction, has successfully navigated a variety of presidents, geopolitical issues, trade crises, wars and other major events. We would be surprised if this one plays out any differently.

We continue to believe that FedEx’s strong balance sheet, modest dividend yield and position as an industry leader are factors for long-term investors to like.

FDX trades just above 13 times the midpoint of the recently revised-lower EPS guidance, with most analysts expecting fiscal 2020 (ended May 2020) to be a trough year for the bottom line. NTM earnings and EPS expectations for the next two years presently stand at $12.80 and $14.48, respectively.

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