How to Look at the Significant Changes at the US Postal Service as an Investment Opportunity

When you have made the decision in your heart to cultivate an understanding of individual stock investing with the objective of finding a means of multiplying your assets over TIME, one of the centerpieces of this activity is developing an eye for what is changing around you and identifying the commercial implications from an investor’s viewpoint. In other words – If you want to make money investing in individual stocks (which is a proven, great idea for those who get it right), you need to see what is happening new around you that’s going to cause something to grow and find a way to put your money to work on that idea.

Today the US Postal Service issued a very important announcement. In our SMC mind, this announcement has been YEARS in the making and today is the day that it was birthed to the public. The title of the announcement is “Postal Service Faces New Reality”. Friends, this is quite an excellent document for anyone with an business or investment mind to read, and it is an excellent teaching tool to share with family members learning about business, finance, supply and demand, and how to address changes within an organization. Please see click here for this complete announcement posted on the USPS website.

There are many important pieces to this short document, but from a stock investing standpoint here is the section that really stands out – “The mail processing network itself was constructed to process and deliver First-Class Mail within a 1–3 day window depending on where the mail is sent and delivered. With the proposed change, the new service standard would become 2–3 days, meaning that on average, customers would no longer receive mail the day after it was mailed. If implemented, the change in service standards would allow for significant infrastructure changes to be made across the nation.”

From an investor’s viewpoint, we need to ask ourselves these and other questions –

1. Do people and businesses still want mail delivered the next day and are they willing to pay for it? Our answer is = Yes. In fact, Fedex has proven that people and businesses will pay a big premium to get mail somewhere overnight or within 1 day.

2. If the USPS no longer will emphasize next day delivery, and instead focus on 2-3 days, is there an existing, publicly traded company that stands to benefit significantly OVER TIME from this change in policy and focus at the USPS? Our answer is Yes – Fedex (Ticker: FDX $76.50) and UPS (UPS $66.20) immediately come to mind as excellently managed US companies that stand to benefit significantly from this change at the USPS.

3. But aren’t the same challenges that the USPS faces and that are forcing these significant changes also impacting Fedex and others? Our answer = To a certain degree, yes. BUT we believe that “for profit” corporations like Fedex have built their businesses very strongly during this same period of decline in mail volume and have strong revenue models in place that can very effectively take each drop of new revenue (like business that was processed by the USPS) and drive bottom line earnings growth.

4. Does this mean that an investor should simply go out and buy Fedex stock and ride it into the sunset? Our answer = No. If the U.S. enters a recession, stocks like Fedex will suffer too. That is why the Fedex stock is DOWN -22% from its recent July high of $98.66. A move above $80 will get us interested, if not a little sooner.

5. For those investors interested in stocks that pay dividends, Fedex does pay a dividend of $0.52/share, which equates to a yield of 0.7% based on today’s share price. But 0.7% isn’t a very good yield. An investment in Fedex would need to be on the merit of significant share price appreciation – not a dividend investment. In comparison, during Monday night’s SMC Successful Investing Webinar we brainstormed about the merits of Intel stock based on its +4.0% dividend.

 

Here’s a daily chart of Fedex to give you an idea of what the price development look like since the beginning of this year (Click chart to open larger in a separate browser window) –

 

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Please remember – at the Stock Market Companion we do not and cannot give individual investment advice. According to the State of Washington RCW21.20.005 the Stock Market Companion is not a Registered Financial Advisor and we do not render any advice on the basis of the specific investment situation of a particular individual. This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should our Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  Please seek the counsel of a broker or other licensed investment professional for accurate pricing and concerning the suitability of all investments that you may be considering. Disclosure : You understand that the Stock Market Companion holds positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.

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