Mikias Stewart ’23 and Chisom Njoku ’23 broke down the market’s sluggish performance this week. The S&P 500 was down around 0.9% for the week, while the Nasdaq was down over 1.2%.
Energy Analyst Tate Harobin ’22 presented an update on the club’s energy sector. Several of the club’s energy holdings have been thriving since the new year, including, Chevron +20.26% YTD, Exxon +36.89% YTD, Kindler Morgan +21.51% YTD. One of the few laggards in our sector includes SolarEdge which is down -14.35% since we purchased it in October.
In order to adjust our portfolio to the newly approved ESG guidelines, Industrials Analyst Ian Lee ’22 provided the club with a sell pitch for Southern Copper and a FedEx Buy Pitch.
We will be selling SCCO due to ESG concerns. With an ESG rating of CCC, Southern Copper has the worst possible rating for the past 5 years. This is primarily due to the company’s toxic emissions, land use, community relations, corporate governance, and other aspects. All of these categories lagged behind SCCO’s peers in the mining industry. The sale will generate $25,700 cash for the portfolio and a 167% return. With the sale of Southern Copper, Ian believes that the club should put this newfound cashback to work. In order to expand our Industrials holdings, Ian pitched the shipping giant FedEx.
FedEx’s business is divided into three main divisions: FedEx Express, FedEx Ground, and FedEx Freight. FedEx Express delivers to over 220 countries, FedEx Ground encompasses small package delivery in the US and Canada, and FedEx Freight provides “less-than-truckload” delivery services of any length. The majority of FedEx’s revenue comes from Express and Ground.
FedEx’s most recent quarterly revenue rose 23% YoY and included significant increases in both commercial and residential shipping. Their EPS also increased from $1.20 to $3.30. A lot of this recent success has been driven by the Covid-19 pandemic, with the e-commerce market size projected to increase 31% by 2025. FedEx has beaten its earnings estimates by an average of 43% over the past 4 quarters, meanwhile, UPS has beaten earnings estimates by an average of 34% over the past 4 quarters. FedEx has an extensive international shipping network that is extremely hard and costly to replicate. With a current price of $277 and a 52-week range of $103-$305, Ian believes that the stock’s current position provides an excellent entry point.
Despite this, Ian also voiced some potential market and internal concerns for FedEx’s future performance. The return to in-person shopping could be more intense than expected, and the e-commerce boom that has fueled FedEx could slow. Amazon may also try to become a commercial parcel carrier to shippers outside of the company. FedEx could also have further trouble integrating TNT (acquired 3 years ago), which could slow European segment growth.
The club approved Ian’s Buy/Sell proposal for Southern Copper and FedEx. Congratulations on a successful pitch!