Thursday, November 29, 2012

Kids know best: Fedex

Recently I opened a stock market account for each of my kids. Might as well start teaching them early, right? I asked my son what he wanted to buy first. "Fedex". I asked why? "I like the stores." We recently spent time there faxing, printing, and producing publications. He bought a combination lock with his own money. I guess it was a high point. So I took a look at Fedex. A dead stock for the past two years, there is much to like. Over the last two years earnings have been growing at a 30% rate as the company cut costs, shifted services, and most importantly benefited from the recovering economy. The brand is intact. The potential federal cuts to the postal service and the long term increasing use of online retail purchases all bode well for delivery services like Fedex. expects a 5% increase in net operating income YOY this quarter. Considering the current p/e ratio of 13.9, it is underpriced to the S&P 500 p/e of 17. I like the reliability of FDX earnings, so the p/e seems low. Overall, I think my boy made a good choice. I will follow him. Will buy FDX JAN 14 $87.5 calls at $11.30 and sell FDX JAN 14 $90 calls at 9.95. Spread of $1.35 with a upside of $1.15.