Why did I just buy this stock that dropped 5%? – Business News (Trending Perfect)

Should investors be afraid or greedy right now? Warren Buffett is known to be the opposite of most.

Buffett has amassed a massive cash reserve of $277 billion. Berkshire Hathaway He was selling more stocks than he was buying. He seems more afraid of greed these days.

I will do the opposite. I have chosen to invest some of my money in recent days. In particular, I have bought shares of the shipping and logistics giant United Parcel Service (NYSE: UPS)Here are three reasons why I'm buying this stock, which has a 5.1% earnings decline.

1. Ready to recover

To call UPS exhausted may not be enough. The stock is down about 20% this year and down more than 45% from its peak in early 2022. But I think UPS is poised to recover.

UPS, on the other hand, is at a turning point. The company’s U.S. sales volume grew in the second quarter for the first time in nine quarters. Average daily volume also increased year-over-year in 11 of UPS’s top 20 export countries, something that hadn’t happened in 10 quarters.

Management expects strong earnings growth to return in the second half of the year. The company is carrying higher costs related to a union agreement negotiated last year, which means UPS's cost structure will improve over the next few years.

UPS has resumed operations. stock buybackwhich is another positive sign. The company plans to buy back about $500 million of its own shares through the rest of 2024 and buy back about $1 billion of shares annually going forward.

2. A business built for the long term.

COVID-19 pandemic, union negotiations, and Amazon UPS's (UPS's largest customer) delivery business has been hurting in recent years. However, I firmly believe that this business is built for the long term.

UPS is still very strong. trench Despite the risks Amazon poses, few companies can afford to invest the billions of dollars needed to expand their shipping network to operate as efficiently as UPS.

I like CEO Carol Tomé’s goal to double UPS’s healthcare logistics revenue to $20 billion by 2026. I also applaud her strategy to grow small and medium-sized business from 29% to 35% over the same period and eventually to 40%. These markets offer higher margins that will boost UPS’s bottom line.

3. Attractive profits

UPS's dividend was also a major factor in my decision to buy the stock. The dividend yield of over 5.1% gives UPS a good start to delivering strong total returns.

I expect earnings to grow going forward; UPS has increased its dividend for 15 consecutive years. The company is targeting to pay out about 50% of the prior year’s adjusted earnings per share. While it will be much higher than that level in 2024, I think UPS will be able to reduce its dividend payout ratio to its target over the next two years.

The story continues

UPS’s top capital allocation priority is reinvesting in the business, but stable and growing dividends are a close second. Importantly, share buybacks are the company’s fourth-highest capital allocation priority. As UPS begins to buy back shares again, it seems clear that management doesn’t expect to have any trouble continuing to pay dividends, at least at current levels.

Should you invest $1,000 in United Parcel Service now?

Before you buy shares in United Parcel Service, keep the following in mind:

the Motley Fool Stock Advisor The team of analysts has just identified what they believe to be Top 10 Stocks Now, investors can buy shares of United Parcel Service… and it wasn’t one of them. And the 10 stocks that did it could deliver massive returns in the years ahead.

Think about when Nvidia I made this list on April 15, 2005… If you invested $1,000 at the time of our recommendation, You will have $752,835.!*

Stock Advisor It provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. Stock Advisor The service has More than four times S&P 500 Index Return Since 2002*.

View the 10 stocks »

*Stock Advisor returns as of August 12, 2024

John Mackey, the former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Spits The Motley Fool has positions in Amazon, Berkshire Hathaway, and United Parcel Service. The Motley Fool has positions in and recommends Amazon and Berkshire Hathaway. The Motley Fool recommends United Parcel Service. The Motley Fool has Disclosure Policy.

Why did I just buy this stock that dropped 5%? Originally posted by The Motley Fool