Herb Greenberg raises red flags for UPS; A follow-up on Pernod Ricard; Avoid actively managed funds
I concluded:
I'm not excited about any of these three...
FedEx and UPS haven't been great long-term performers... and their stocks, though modestly valued, aren't exactly cheap. I like EXPD's business and performance better, but this is reflected in the higher valuation.
If only I could combine EXPD's business with FDX's multiple and UPS's 50% decline in share price!
Since then, UPS's stock has declined another 21% and sits near a 10-year low.
Could it now be cheap enough to buy?
My friend and former colleague Herb Greenberg thinks not... And he outlined why in a report he sent to his subscribers on August 16, titled "Why I'm Red-Flagging UPS."
I asked if he would be willing to share it with my readers, and he generously said yes.
You can access the report here – but only for the next five days. So be sure to read it before then.
After outlining the bull case, he details why he thinks the stock is struggling in a "three-way vise":
• On one hand, it's being squeezed by the costs and restrictive controls of having 75% of its workforce unionized, which puts it at a competitive and technological disadvantage... not to mention the constant threat of renegotiating new labor contracts. The current contract with the Teamsters, who represent most of its employees, runs for three more years.
• On the other, there's FedEx, which has seized on its own competitive advantages – coming to the rescue of UPS workers looking for a shipper unlikely to face disruptions caused by union negotiations.
• Finally, there's Amazon, which is increasingly becoming a competitor in its own right. And which until recently, was also UPS's largest customer. UPS is in what it calls a "glide down relationship" with Amazon – a relationship that generated explosive growth during Covid. But earlier this year, citing the unprofitable nature of its Amazon business, UPS announced plans to accelerate the glide down to eliminate half of all Amazon's sales by next year. By the end of this year, the company says, it should be down 30%.
Thank you for sharing, Herb!
I agree that there's a good chance UPS will continue to struggle, making its stock a value trap. So I'd continue to avoid it.
2) On November 14, 2024, I took a first look at French wine and spirits maker Pernod Ricard (RI.PA). It's known for brands such as Absolut, Ballantine's, Beefeater, Blenders Pride, Chivas Regal, Imperial, Jameson, and Kahlúa.
I concluded:
I wouldn't be interested in paying 15 times earnings for a company that has shown almost no growth for the past 16 years and whose revenue and profits actually declined last year... so Pernod Ricard's stock is a pass for me.
It was a good call, as the stock fell another 24% to hit an 11-year low of around 84 euros this summer.
But since then, it has rallied nearly 20% on hopes that the company might return to growth.
Yesterday, Pernod Ricard reported earnings for fiscal 2025 (you can read the press release here and investor presentation here). According to Capital IQ data, for the first time in more than two years, year-over-year revenue grew – albeit by a paltry 4.7% – and operating income jumped by 11.8%.
Importantly, the company boosted its outlook, as noted in this article from the Wall Street Journal:
The growth trajectory outlined by management marks an improvement on what the market had feared. While visibility on the exact timing of recovery is low, bad news are already priced into the share price, Jefferies analysts wrote in a note to clients.
The increased confidence supported Pernod Ricard's stock, which rose as much as 8.5% in European morning trading to 107.5 euros, their highest level in more than six months.
With the stock trading at 15 times analysts' consensus earnings expectations for this year, is it cheap enough to buy?
I'm skeptical – not just because of tariff headwinds and consumer-demand weakness in China and India, but also because alcohol consumption is in decline.
A recent Gallup poll shows that, due to health concerns, the percentage of Americans who drink is at an all-time low – and those who drink are drinking less:
The consecutive declines in Americans' reported drinking the past few years are unmatched in Gallup's trend and coincide with recent research indicating that any level of alcohol consumption may negatively affect health. This has been a sharp reversal from previous recommendations that moderate drinking could offer some protective benefits.
I think there's another headwind as well: the rise of GLP-1 weight-loss drugs.
As this NPR article notes, these drugs appear to reduce all sorts of cravings and compulsive behaviors:
With the drug's surge in popularity, doctors and patients have begun to notice a striking side effect of these drugs: They appear to reduce people's cravings for alcohol, nicotine and opioids. They may also reduce some types of compulsive behaviors, such as gambling and online shopping.
"There's really been a large number of clinical and anecdotal reports coming in suggesting that people's drinking behaviors are changing and in some instances pretty substantially while taking [Ozempic or Wegovy]," says Christian Hendershot, a psychologist and addiction researcher at the University of North Carolina.
And in animal experiments, alcohol consumption drops by more than half:
For more than a decade now, [pharmacologist Elisabet Jerlhag] and her colleagues at the University of Gothenburg in Sweden have been figuring out in great detail how GLP-1 drugs, such as Ozempic, reduce alcohol consumption in rats.
She and other scientists have published nearly a dozen studies showing how these drugs stop binge drinking in rats or mice, prevent relapse in "addicted" animals, and overall decrease their consumption of alcohol. "So we see a reduction by over 50%, which is quite dramatic," Jerlhag says.
In summary, much like UPS, I think Pernod Ricard's headwinds aren't going to dissipate anytime soon. So the stock remains a pass for me.
3) On August 19, I shared why I recently sold 60% of my holdings of an exchange-traded fund ("ETF") that tracks the S&P 500 Index. And I replaced it with two other index ETFs: one for an equal-weighted S&P 500 and the other an international index.
This was a significant change, to be sure. But I want to underscore that I stuck to index funds with the roughly half of my net worth that I choose to index. And the rest of is invested mostly in stocks.
I don't own – and have never owned – any actively managed mutual funds. Why? Because nearly all of them underperform their respective benchmarks, as shown in this chart posted by Peter Mallouk on social platform X:
There are many reasons for this, such as high fees, trading costs, etc. But the single biggest reason is that index funds let their winners run.
I've written about this often... When huge stocks like Nvidia (NVDA), Apple (AAPL), Netflix (NFLX), and Monster Beverage (MNST) double and then double again, active money managers tend to sell them.
But index funds don't do that. Instead, they ride them to 100-bagger-plus returns. Almost no human beings have the patience and discipline to do this.
The takeaway here is simple: Investing in low-fee, diversified index funds or ETFs is a great option. And picking a handful of stocks (say, 10 to 20) to try to beat the market makes sense, if you know what you're doing.
(Even better if you have good stock advice, like my team and I share in Stansberry's Investment Advisory. If you're not already subscribed, you can do so by clicking here.)
But the odds are stacked against you if you try to pick actively managed funds.
Best regards,
Whitney
P.S. Our offices and the markets are closed on Monday for Labor Day. Look for my next daily e-mail on Tuesday, September 2. Enjoy the holiday!
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