United Parcel Service: The Right Value Stock for Right Now

• United Parcel Service (UPS) beat estimates in the first quarter and the stock price went down.
• UPS is now the best competitor to Amazon fulfillment, with a solid operation and stable culture.
• UPS stock offers investors an affordable dividend with a great yield.

Right now, United Parcel Service (NYSE:UPS) is one of the world’s great value stocks. It opened Apr. 29 at $189 per share. That gives it a market capitalization of over $165 billion. But its price to earnings multiple is just 13, well under the market. Its $1.52 per share quarterly dividend yields 3.26%, which is still better than a government bond.

While tech stocks like Amazon.Com (NASDAQ:AMZN) rose and fell, UPS stock stayed relatively strong. It is down around 14% over the last year, while Amazon is down 25% and the overall market, including oil stocks, is flat.

You might think analysts would love the value. You would be wrong. Tipranks has 24 analysts on UPS with just a thin majority of 13 rating it a “buy.” Their price target of $230 would leave next year’s investors with a 3% yield.

What’s wrong with this picture?

The Bear Case

Despite the hard fall of technology, analysts still haven’t caught the value bug.

Bank of America (NYSE:BAC) recently downgraded UPS and other transportation stocks, worried that freight demand is waning. Barclays (NYSE:BCS) is maintaining an “equal weight” rating on the stock, but reduced its price target to $220 per share. 

UPS executives said that they see a growing preference by consumers for experiences over goods. This caused residential deliveries to drop 7.4% for the quarter, offset by a 3.6% increase in business deliveries.

Bears are increasingly worried about Amazon, which is now opening its fulfillment system to merchants who don’t sell through Amazon. This “Buy With Prime” plan lets Amazon Prime customers get free shipping from third-party merchants and could be expanded beyond sites now using Amazon for fulfillment.

The Bull Case

UPS announced its earnings Apr. 24. For the quarter ending in March, it earned $2.66 billion, which is $3.03 per share fully diluted, on revenue of $21.1 billion. Operating profit was $3.3 billion. The numbers beat analyst estimates. Domestic revenues rose 7.7% and the company doubled its share buyback program to $2 billion. It plans to spend over $5 billion on dividends this year.

That would mean the stock popped higher, right? Wrong. It fell 3%. Analysts blamed earlier gains from its beat on fourth quarter earnings. Traders and technical analysts wrote that the stock was no longer interesting.

During the pandemic, UPS emerged as the strongest competitor to Amazon. FedEx (NYSE:FDX), its long time rival, lost ground in 2021 by obsessing over Amazon. Its stock is down 22% for the year and founder Fred Smith is retiring.

Instead of obsessing over Amazon, UPS Chief Executive Officer Carol Tome obsessed over UPS. The company now has a solid cloud relationship with Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) and can track packages with RFID chips. It has partnered with Jumia (NASDAQ:JMIA) in Africa, a fast-growing market.

With over $10 billion in cash, UPS can take advantage of demand slowdowns to improve operations. That includes improving worker safety and clearing the employee ranks of potential thieves. It also means experimenting with things like electric bicycles that can lower costs.

The Bottom Line on UPS Stock

UPS is not an exciting company. UPS stock is not an exciting stock. But that may be just what your portfolio needs right now.

UPS offers a solid dividend, growth in line with the market, and operational expertise. It’s in much better shape to compete with Amazon than FedEx or even the U.S. Postal Service.

Just remember you’re not buying UPS stock for capital gains. You’re buying it for capital preservation and for the dividend. These should come into fashion as tech investors count their losses and look for security. Diversification is how you grow rich slowly, and UPS stock offers what balanced portfolios need right now.

On the date of publication, Dana Blankenhorn held long positions in BAC, GOOGL and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.