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Motley Fool: FedEx appears poised to deliver whole package

SUNDAY, OCT. 30, 2011

Shares of FedEx (NYSE: FDX) recently dropped to a nearly two-year low after the company slightly lowered its full-year earnings outlook because of the global slowdown.

The market may have overreacted, though. FedEx posted revenue of $10.5 billion for the quarter, up 11 percent from a year ago. Earnings per share (EPS) rose 22 percent.

The sluggish global economy has been hurting FedEx and rival United Parcel Service. Even airlines are facing lower cargo shipments. As a result, FedEx has reduced its full-year EPS outlook.

FedEx is suffering from declining demand and volume in the U.S. and Asia. Operating expenses grew by 11 percent over the last year, largely due to a 40 percent increase in fuel costs. So far, FedEx has managed to offset these problems by raising prices.

However, customers are shifting to slower, and cheaper, shipping options. Thus, daily average package volume fell 3 percent for FedEx Express, while rising 5 percent for FedEx Ground.

Though the slow-moving economy is not favorable to FedEx, it still has the potential to grow. This dividend-paying company is trading at a low price because of global economic uncertainty and is poised to do well. (The Motley Fool owns shares of FedEx and United Parcel Service, and its newsletter services have recommended FedEx.)

Ask the Fool

Q: How is inflation measured? – W.R., Vail, Colo.

A: Meet the U.S. Consumer Price Index (CPI). According to the Bureau of Labor Statistics (BLS), it’s “a measure of the average change over time in the prices paid by urban consumers (87 percent of the U.S. population) for a market basket of consumer goods and services.”

The “basket” includes items such as cereal, fuel, pet food, rent, postage, cigarettes, college tuition, medications and haircuts. The index shows that if you bought such items for $100 in 1980, in 2011 they would have cost you $275. .

The CPI is used as an economic indicator and a means of adjusting dollar values, among other things. Learn much more at www.bls.gov/cpi/cpifaq.htm.

Q: Why shouldn’t I borrow against my credit card and invest in the stock market? – A.B., Sioux City, Iowa

A: Danger, Will Robinson! The U.S. stock market has, over many decades, averaged about 10 percent per year in returns. But that’s an average that may not hold up in the near future. In some years, it loses money – such as 12 percent in 2001, 22 percent in 2002 and a whopping 37 percent in 2008. (Countering that, the S&P 500 soared 29 percent in 2003 and 27 percent in 2009.)

Meanwhile, credit cards have recently been charging an average interest rate of about 15 percent – and about 25 percent for those with bad credit. In the long run, you’re likely to lose more than you gain if you try to make money in stocks while forfeiting money to credit card issuers.

My dumbest investment

I recently invested with a commodities firm that was promising great returns on precious metals. I let myself get talked into buying on margin (great sales talk) and then learned that the interest rate I was being charged was 7.5 percent, and that there was a 15 percent purchase commission, a $200 charge to open an account, and a $100-plus charge to deliver the commodity to me.

I lost more than 80 percent on a “sure-fire” deal. Metal went down a bit, but I lost a LOT. I did learn what not to do if I want to do this type of investment again. For instance, it’s much cheaper to buy directly from the bank or mint and hold in my own custody. – C.B., Peterborough, Ontario

The Fool responds: Ouch. Commodities can be dangerous. Be wary of anyone promising great returns. Be careful with buying on margin, too, where you borrow money with which to invest. If your investment heads south, you can end up owing much more than you invested.



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