Why FedEx Keeps Rolling

 | Aug 12, 2013 | 4:19 PM EDT  | Comments
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,

ups

Who keeps buying FedEx (FDX)? What is this all about? So often I find that this stock simply can't be kept down. Do you know that it has disappointed every single quarter since when it was at $82?

It's stocks like FDX that are so frustrating to many bears. Shorts have all learned the simple rule that if a company disappoints on its quarter, it goes down. Repeated disappointments repeatedly drive a stock down. No company can get the benefit of the doubt endlessly, especially when its competitor, United Parcel Service (UPS), openly bemoans the whole industry, and FedEx makes the point that very few large customers are begging for faster shipping.

But this one never quits.

I think that FedEx defines this bull market. It's a high-profile levered play to world commerce that went up when world commerce was declining and is now going up when world commerce might be increasing.

I have a couple of theories why:

  1. There are still so many short-selling moths out there who can't resist the FedEx flame. The most recent move occurred when UPS totally trashed expectations. They went for FedEx, and FedEx spoiled the short.
  2. People are desperate to find a long position that is levered to a turn in commerce in Asia and Europe, and they keep coming back to this one because it is a pure play.
  3. It's a terrific company, and as long as people like the company, they will buy the stock on any weakness.

I find all of these issues underpinned by one thought, though. In a bear market, this thing would be so beaten down that it could be in the $70s. Why not? It's got a $7 earnings estimate attached to it, and the estimates have proven to be pretty far off here. Instead, it's looking like people want to put a 20 multiple on it.

FedEx has always been a terrible trader, gapping up and down erratically as long as I can remember trading it. But you have to admit one thing: Every single time this one has dipped, it has been a buy. Maybe that's the only playbook you need in order to tame this one.

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