Shares of FedEx (NYSE: FDX) were recently trading 32% below their 52-week high, amid fears of a global slowdown in the economy and the threat of potential competition with Amazon.com, which has been building its own shipping service.
That sounds bad, but Amazon made up only 1.3% of FedEx’s revenue last year. FedEx has long dominated the air, but it has been steadily gaining on rival UPS in ground shipping speed. FedEx’s ground market share has steadily climbed over the past decade or so from less than 20% to more than 30%.
Right now, the company is focused on getting more efficient at handling residential e-commerce deliveries, particularly in rural areas. It just announced a deal to handle shipments for more than 8,000 pickup and delivery locations at Dollar General stores in low-population rural areas. FedEx is also expanding agreements with other major retailers such as Walgreens Boots Alliance and Walmart (which also has its own shipping fleet).
Management is cautious about business activity in the short term, but there’s plenty of opportunity to grow in the long term. FedEx will start delivering seven days a week in 2020. Plus, the company is testing the use of robots for last-mile deliveries. With a forward-looking price-to-earnings (P/E) ratio recently around 10 and a dividend yield of 1.6%, the stock is worth considering. (The Motley Fool owns shares of and has recommended FedEx.)
Ask the Fool
Q: What are derivatives? – Y.S., Dalton, Georgia
A: Derivatives are financial contracts whose value is based on (“derived”) something else, such as stocks, bonds, currencies, commodities, interest rates or even mortgages. Examples of derivatives include warrants, futures, swaps and options.
A share of stock represents a real ownership stake in a real company. A stock option, though, is a contract that helps you make (or lose) money based on the price of that stock. Meanwhile, several derivatives may be based on a single bundle of home mortgages, with one representing the bundle’s interest payments and another representing its principal payments. Since they will react differently to interest rate changes, they will each likely appeal to a different kind of investor.
Derivatives can permit investors to hedge their bets, engage in arbitrage (profiting from differences in prices), lock in prices and use leverage (investing with borrowed money), among other things. They’re typically used by large, institutional investors, and many are quite risky, causing investors to lose more than their initial investment. Derivatives are best avoided by many, if not most, investors.
Q: What’s the “triple-witching” hour? – G.G., Tucson, Arizona
A: Four times a year – in March, June, September and December – stock options, stock-index options and stock-index futures all expire on the same day. The last trading hour of that day is known as the triple-witching hour. The market can be extra-volatile then, as traders are running out of time to take any actions related to the expiring investments.
Remember that most options and futures are contracts based on short-term pricing rather than long-term business growth. The best way to build long-term wealth is via long-term investing – no witchcraft required.
My dumbest investment
My dumbest investment was the Canadian telecom company Nortel. The stock had been around $100 Canadian per share, and then started heading south. I thought it must be a bargain at CA$33, so I bought. I sold at CA$3 per share, before the company went bankrupt – and to make matters worse, this was in a tax-deferred account, so I didn’t get to use the loss to offset gains.
By the way, I bought Nortel after discussing it with my financial adviser, who thought it was a great idea. This was just another nail in the financial adviser coffin, because I have yet to employ one who ever told me, “Leon, that’s a really stupid investment idea.” They always just said my ideas were great. I am a lot wealthier since dumping them, frequenting the Motley Fool and doing my own investing. – Leon H., online
The Fool responds: Nortel was once one of Canada’s largest companies, valued near $250 billion, but it was damaged by accounting scandals and wasn’t able to turn itself around once the credit crisis hit in 2008.
Regarding financial advisers, there are certainly some great ones. But many won’t be any better at investing than you can be, if you read up on it, study companies well before investing in them – and then keep up with their progress, to minimize the chance that you’ll be surprised by bad news.
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