Email of the day (3)
on some of the key beneficiaries of the growth in ecommerce
“I saw the article on Amazon, etc. on the site today – we discussed UPS briefly the other day. The investment thesis for UPS is that it rides on the back of e-commerce, and if you look at Amazon's sales growth is pretty impressive. UPS makes good money on each Amazon sale, even if Amazon doesn't.
“Also a number of big hedge funds took positions in Fedex, and to my mind UPS is a better company (better margins on U.S. business). They're very similar and neither is cheap on the surface. “
Thank you for this insightful email which I'm sure will be of interest to subscribers. The growth of ecommerce remains on a secular upward trend supported by competitive pricing, the evolution of the retail shopping experience and of course technological innovation.
In addition to the points you make, the changing relationship between buyer and seller has affected how customers take delivery of goods and services and is reducing the requirement for cash by promoting the use of credit cards. It also has the added effect of often doubling the amount of packaging used to transport goods.
UPS has held a progression of higher reaction lows since 2009 and consolidated in the region of the 2004 peak near $80 from May. It has surged out of that ranging phase over the last six weeks and pushed through the psychological $100 level last week. It is becoming increasingly overextended relative to the trend mean, represented by the 200-day MA, so a process of mean reversion is becoming more likely but a clear downward dynamic would be required to check momentum.
Fedex underperformed for nearly three years by ranging mostly below $100. It surged out of this medium-term base in May and continued to extend the breakout. While overextended relative to the prior ranging phase at present, a clear downward dynamic would be required to check momentum.
German listed Deutsche Post Bank has held a progression of higher reaction lows since 2011 and while the share is becoming increasingly overextended relative to the 200-day MA, a break in this sequence would be required to indicate mean reversion is underway.
In the credit card sector Mastercard is the most overextended relative to its trend mean while Visa, American Express and Discover Financial continue to hold consistent progressions of higher reaction lows.