Chart of the Week – FedEx

Screen Shot 2018-11-04 at 6.31.23 PM.pngSource: ThinkorSwim

This chart of FedEx (FDX) shows that from a technical perspective FedEx may be at a perfect buying position. When this is coupled with the distribution company’s strong fundamentals and positive industry outlook FedEx appears to be a great value investment.

Similar to the performance of the entire market, FedEx recently got crushed in the month of October as it lost approximately 8% of its share price. However, as it currently trades at $221.66, this may not be all bad news. This is instead a great opportunity to take a position in a company that has both terrific long and short-term prospects.

From a technical perspective, we are looking at a stock that has bounced off a long-term support level and broken through a short-term resistance boundary. These movements are illustrated in the chart above. The short red channel that has developed over the past month was clearly a very bearish channel. Three trading periods ago the price broke through the top boundary (resistance) of the channel and this movement was further emphasized by another up day in the following trading session. Breaking through this resistance line was an incredibly important movement as it breaks the stocks month long downward trend and signals a reversal. The longer red line shows a price channel that has been developing for approximately eleven months. The stock bounced off this line of support at the yearlong low illustrated on the chart as “Lo: 207.9”. This acts as more proof that the stock has made a reversal. It also gives a conservative price target of approximately $250 which is shown by the long-term level of support that rides along the top of the stock’s price channel.

Not only are there positive signs displayed by the stock’s price channel but we can also find good indicators in the charts shown below the price graph. The RSI is currently at ~47. This indicates that the stock is currently oversold and should expect more “buys” in the near future. As can be seen throughout the past year, whenever the stock tested our long-term level of resistance the RSI reached or surpassed 70 signifying it was overbought. This proves that FedEx has some room to run before it reaches our conservative price target at the long-term level of resistance. Below the RSI chart is the MACD chart. This chart shows the momentum of the stock. The signal line (white) has just dipped below the moving average (blue) and this indicates that there is bullish, upward momentum for the stock.

Along with its positive technical indicators, FedEx also impresses from a fundamental standpoint. The income statement shows that Total Revenue and Net Income have increased steadily over the past four years. One may be discouraged by a decrease in Total Revenue and Net Income in the previous quarter but I would argue that FedEx is a cyclical company and the winter quarters will be stronger than the summer quarters due to the influx of orders being delivered. FedEx also boasts an EBITDA multiple below 10 at 8.47 and a P/E ratio well below the industry average. Analysts predict 12.88% growth in earnings over the next five years to further cement the long-term potential of this stock.

As we step back and look at FedEx from an industry wide perspective we are also given very positive outlook. The growth of the transportation and distribution industry is where I believe FedEx gets much of its future growth potential from. Consumer confidence is at an 18-year high and this is very good news for the transportation and distribution industry. When consumer confidence is high this means that more orders are placed and as a major player in the industry FedEx will be the beneficiary of a large chunk of these orders. There is also serious growth potential for e-commerce and I believe that the future of distribution runs hand in hand with e-commerce. As more and more retail purchases are being made online FedEx will be relied on to deliver these products to its customers. Stores like Sears have become obsolete due to their inability to adapt to the emergence of e-commerce. On the other hand, Wal-Mart and Target are making serious efforts to keep up with e-commerce giant, Amazon. This competition by retailers to increase deliveries and accelerate the timeliness of these deliveries significantly benefits the revenue at FedEx. Retailers’ competition to get deliveries to their customers as promptly as possible suits FedEx perfectly as their FedEx Express branch specializes in timely and reliable delivery.

By combining a chart that appears to be starting an uptrend, positive fundamentals, and serious growth potential throughout the company’s sector it is clear that FedEx has significant potential. Following a significant market wide correction like the one we just witnessed in October we have the opportunity to buy terrific long-term stocks at a very low price. FedEx is positioned well in a high ceiling industry and I believe now might be the perfect time to buy.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s