We recently compiled a list of the 10 Worst Performing Blue Chip Stocks in 2024. In this article, we are going to take a look at where United Parcel Service, Inc. (NYSE:UPS) stands against the other worst performing blue chip stocks in 2024.
Strong Market Performance Amid Uncertainty
The third quarter ended with a bang, with all the major indices near record highs as investors shunned macroeconomic instability, soaring geopolitical tensions and U.S. election uncertainty. Strong gains in the quarter were fuelled by expectations of lower interest rates heading into year-end and growing expectations of a soft landing of the U.S. economy.
Artificial intelligence has been a big success story that has helped push the equity markets to record highs. Against the overall trend, the current bull market had a better second year, up 33% compared to the historical average of 13%, and a better first year, up 22% compared to the historical average of 44%, according to BofA. It’s also important to remember that even bull markets’ third years of growth can be rocky.
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While the S&P 500 has gained over 60% since the 2022 lows, researchers at BofA note that there could be a significant pullback in the near future.
“Historical studies suggest that the third year of a typical bull market tends to be unremarkable as a mild bout of de-rating overshadows humdrum earnings growth,” BofA equity strategist Ritesh Samadhiya said in a note to clients.
Economic Concerns and Investment Opportunities
While voicing concern that the economy is running at a hotter-than-desired pace, Federal Reserve Governor Christopher Waller hinted that future interest rate cuts would be less drastic than the significant move in September. According to policymakers, recent employment, inflation, GDP, and income reports indicate that the economy might not slow down.
“While we do not want to overreact to this data or look through it, I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting,” Waller said in prepared remarks for a conference at Stanford University.
The sentiments come as investors remain cautious about the long-term outlook amid soaring geopolitical tensions and economic uncertainties. The growing uncertainties have been one of the catalysts behind some of the worst-performing blue chip stocks in 2024.
Nevertheless, some underperforming stocks may allow investors to purchase the long-term decline. However, many are just dealing with issues unique to their company, such as bloated balance sheets or broken business models.
It might be a while before the market bounces back. In the interim, investors should be aware of the market’s possible value stocks. Even if it is not popular or profitable in the short term, the long-term benefits of investing wisely and deviating from the crowd can be significant, according to the contrarian investing philosophy.
Investing during a market downturn may present chances for sizable returns in the long term. We examine the top 10 blue-chip losers to date and potential opportunities for investors to acquire them.
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Our Methodology
To prepare this article, we began by listing all the holdings of the various blue chip ETFs like E.A. Bridgeway Blue Chip ETF, Vanguard Mega Cap ETF, and DOW 30. We then sourced the year-to-date share price returns for each company. Based on these returns, we ranked the companies in descending order.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
United Parcel Service, Inc. (NYSE:UPS)
Year to Date Return: -12.98%
Number of Hedge Fund Holders: 44
Package delivery juggernaut United Parcel Service, Inc. (NYSE:UPS) is turning out to be one of the worst-performing blue chip stocks in 2024, down by about 12.98% for the year. Its woes and underperformance stem from declining delivery volumes in its core U.S. domestic package market.
The volume drops are especially concerning because they followed periods of extraordinary growth brought on by the lockdowns. A slowing economy led to a decline in demand, and that growth incentivized package delivery companies to increase supply, resulting in a notable capacity surplus in 2023.
Deteriorating economic conditions have fueled the weak delivery volumes amid the high interest rates. Nevertheless, United Parcel Service, Inc. (NYSE:UPS)’s outlook should receive a boost in the U.S. Federal Reserve cutting interest, which is expected to boost consumer purchasing power, fuelling a spike in shopping trends leading to higher shipping volumes.
In the long term, lower interest rates will unavoidably promote economic expansion, which typically translates into increased packages delivered. Long-term investors who are prepared to bear the possibility of negative news in the near future may be persuaded to purchase UPS as it is trading at a discount with a price-to-earnings multiple of 14 after a significant pullback.
Likewise, UPS has proved to be a solid investment play for generating passive income, as the stock currently yields 4.84% on dividends. At the end of Q2 2024, 44 hedge funds reported holding stakes in United Parcel Service, Inc. (NYSE:UPS), with a total value of $1.31 billion.
Here is what Artisan Partners’ Artisan Value Fund said about United Parcel Service, Inc. (NYSE:UPS) in its first quarter 2024 investor letter:
“United Parcel Service, Inc. (NYSE: U.P.S.) was a Q4 2023 purchase. When we initiated our position, shares were under pressure due to concerns about its new labor contract diverting volumes and driving up costs, as well as the continued normalization of volumes following COVID-related gains. The stock moved higher after we purchased it but gave up those gains in January when the company reported weaker-than-expected shipping volumes and a decline in revenue in the prior quarter. Despite the long-term growth tailwinds from the secular shift toward e-commerce, the shipping business is still cyclical, so disappointments will happen. However, we welcomed the market’s short-term focus as it provided us an opportunity to purchase U.P.S. at an undemanding valuation of less than 11X our view of normalized earnings. U.P.S. is a good transport operation that easily earns its cost of capital, generates significant free cash, has a wide economic moat, has a strong financial profile and pays an attractive dividend yielding 4%. With the new 5-year labor agreement completed, we believe U.P.S. can focus on regaining lost volume and improving its cost structure.”
Overall UPS ranks 6th on our list of the worst performing blue chip stocks in 2024. While we acknowledge the potential of UPS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than UPS, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.