4 Stocks to Buy Before Black Friday 2023

Black Friday, a renowned shopping holiday, is rapidly gaining popularity worldwide. The fervor surfaces like clockwork every year. The event signals the onset of the festive retail period, where vendors entice consumers with considerable discounts and appealing deals on merchandise.

Consumers’ scramble for long-desired products is typically the culmination of months of intense preparation undertaken by retailers, warehouse supervisors, and distribution center managers.

Financial analysts conventionally consider the sales returns on Black Friday to outline prevailing consumer confidence. For retail entities, Black Friday has consistently offered an immense financial uplift. Many consumers leverage the occasion to fulfill their Christmas shopping needs at competitive prices.

With persistent escalations in living costs pressurizing household budgets, 74% of consumers intend to exploit the November sales extravaganza in 2023. The National Retail Federation forecasts that holiday spending will increase annually by 3% to 4%. This year's total festive spending is anticipated to range between $957.3 billion and $966.6 billion.

Black Friday is transitioning from physical store-bound activity to being predominantly digital. In 2022, 69% of Black Friday shopping occurred online, as consumers splurged a record-breaking $9.2 billion, according to data from Adobe Analytics. Furthermore, logistical operations for this retail marathon require meticulous strategizing by retail managers, leading to millions in annual outlay.

As digital transactions encroach on the week-long event, it carries notable implications for delivery logistics. Notably, while retailers profit from the holiday season, package delivery services also stand to reap considerable benefits.

Considering this backdrop, it is pertinent to examine why United Parcel Service, Inc. (UPS), FedEx Corporation (FDX), eBay Inc. (EBAY), and Best Buy Co., Inc. (BBY) could be solid investments this festive season.

United Parcel Service, Inc. (UPS)

With a market cap of over $121 billion, UPS is a logistics behemoth that offers various integrated solutions for customers scattered across more than 200 locations worldwide.

Despite its significant standing, the company has been grappling with an assortment of challenges throughout this year. These range from a weakening demand due to economic slowdown to expensive, drawn-out labor contract negotiations, all translating into a forecasted decline in the company’s revenue and earnings for the current fiscal year.

The protracted labor talks significantly distorted UPS' earnings during the year. The resulting five-year contract led to a whopping $500 million upfront expenses in the third quarter alone. At the same time, the extended negotiations caused many customers to switch their deliveries to other networks.

However, opportunities abound as the Black Friday holiday season approaches for UPS to turn the tide. This retail extravaganza provides ample scope for UPS to augment its revenue, attract fresh clientele, and retain its existing customer base, courtesy of its high-quality service offerings.

UPS is improving the underlying quality of its business. This is most easily seen in two areas relating to its revenue. The first is the conscious decision to be more selective over deliveries rather than chasing volume growth. Second is that UPS has made great strides in expanding its connections with small and medium-sized businesses (SMB) and healthcare customers, and it's been able to significantly grow its revenue per piece in recent years.

Moreover, the company's noteworthy 4.7% dividend yield appeals to a broad swathe of income-oriented investors, and value investors also find favor given its appealing valuation metrics. The firm's below-industry non-GAAP P/E ratio presents a lucrative buying opportunity for investors.

Over the past year, the stock has lost roughly 20% and trails behind the 50, 100, and 200-day moving averages. However, Wall Street analysts forecast the stock to reach $168.30 in the next 12 months, indicating a potential upside of 17.6%. The price target ranges from a low of $100 to a high of $202.

FedEx Corporation (FDX)

The shipping and logistics company FDX, with a market cap of over $63 billion, is poised to reap significant benefits from the upcoming Black Friday sales. In anticipation of heightened online shopping activity during this period, increased demand for shipping services allows the company to expand its customer reach and deepen its market penetration.

Its potential to attract consumers by offering holiday promotional discounts on its services could significantly drive its revenue growth and expand its market share. The company's decision to partner with retailers for shipping services further bolsters the potential for enhanced revenues during this season of heightened consumer spending.

Additional services provided by FDX, including gift wrapping, package tracking and insurance, could further distinguish it in a competitive marketplace, attracting additional consumers during the holiday season.

Furthermore, FDX's effective cost-reduction strategies have successfully strengthened its financial standing. Outperforming Wall Street predictions, the international courier company reported impressive fiscal first-quarter adjusted earnings of $4.55 per share.

This robust financial performance led the company's management to elevate its future financial outlook. FDX shares gained momentum after the Memphis-based firm announced adjusted earnings expectations for fiscal 2024, projecting $17 to $18.50 per share.

The company also expects capital expenditure to reach $5.7 billion, with investment priorities geared towards improving efficiency through fleet and facility modernization, network optimization, and automation strategies.

Driven to implement transformative initiatives enhancing efficiency and reducing expenses, FDX anticipates building upon current momentum to improve profit margins and returns throughout the fiscal year. The stage is set for another year of exceptional profitability for FDX, with shares currently trading at a reasonable valuation.

Over the past year, the stock has gained roughly 45% and trades above the 200-day moving average of $237.12. However, Wall Street analysts forecast the stock to reach $297.85 in the next 12 months, indicating a potential upside of 17.2%. The price target ranges from a low of $265 to a high of $330.

eBay Inc. (EBAY)

With over $20 billion in market cap, EBAY, an established e-commerce heavyweight, is tirelessly striving to attract its consumers' interest and spending power. The company initiated the publication of its discount coupons on November 6.

Customers seeking automotive necessities, smartwatches, and Apple products can reap the benefits of up to 75% discount by commencing their shopping endeavors with EBAY this holiday season.

The company recently expanded access to its Generative AI technology, an innovative system designed to upgrade the listing experience for sellers, which is now available to mobile users in the United States, the United Kingdom, and Germany, and 50% of desktop users in these regions.

However, EBAY's recent sales forecast for the upcoming holiday period has somewhat dispirited investors. Expected revenues for the current quarter are anticipated to total between $2.47 billion and $2.53 billion, which, while robust, fall below the industry analysts' average projections of $2.60 billion.

Its bleak revenue predictions for the historically lucrative holiday quarter indicate continued difficulties in retaining customers amid fierce competition from larger competitors. Despite U.S. online sales being projected to increase by 4.8% during the holiday season spanning November 1 to December 31, EBAY faces an uphill battle to attract traffic. To weather these challenges, the company plans to enhance its cost efficiencies to safeguard profit margins and earnings.

The unexpected forecast emanated shockwaves throughout the financial sector, particularly unsettling EBAY investors. Post-announcement, the company's shares suffered a significant plunge, underscoring the heavy expectations investors attach to EBAY due to its commanding position in the e-commerce market.

Over the past year, the stock has lost over 12% and trades below its 50-, 100-, and 200-day moving averages. However, Wall Street analysts forecast the stock to reach $44.75 in the next 12 months, indicating a potential upside of 11.6%. The price target ranges from a low of $32 to a high of $56.

EBAY constantly refines its strategies to uphold its preeminence in an industry characterized by relentless evolution and revolution. As the holiday season looms, its performance is under intense scrutiny as never before, making its sales forecast a widely watched indicator in the e-commerce landscape.

Best Buy Co., Inc. (BBY)

BBY, with over $14 billion market cap, is a specialty consumer electronics retailer that introduces various promotional events via its recently inaugurated Holiday Gift Center – offering unique exploration and immersive discovery experiences of cutting-edge technologies for its clientele. BBY members can anticipate exclusive savings throughout the holiday period. The company will depend on its My Best Buy membership benefits to boost this year's holiday sales.

Interestingly, BBY finds itself in a unique situation this festive season as it battles to maintain market share during a time frame it typically dominates. The retailer has tempered expectations for a highly successful holiday season, which usually accounts for a significant proportion of its profit margins.

While BBY has a low non-GAAP P/E of 10.30x, its dividend yield of 5.74% remains low for various reasons. As of July 29, 2023, BBY has $8.43 billion in current liabilities and $8.30 billion in current assets. Of its current assets, $5.65 billion in merchandise inventories highly depends on consumer spending patterns.

The company’s vulnerability can be illustrated further by its lower than 1x current ratio. Given the upcoming debt maturity, the company’s fortunes largely hang on the successful sale of inventory to maintain its dividend.

This year’s holiday season provides a moment for BBY's modern retail business model – which largely thrived during the pandemic – to prove its resilience. The Richfield, Minnesota-based firm continues to concentrate on enhancing its digital capabilities, such as augmenting its omnichannel services. Its consultation service, supporting customers' personalized tech requirements, has grown in popularity.

In the second quarter that ended July 29, 2023, digital sales comprised 31% of our domestic revenue, consistent with the year-ago quarter and nearly twice as high as the domestic revenue percentage in the pre-pandemic second quarter of fiscal 2020.

Although the BBY stock has declined over 10% over the past year and is trading beneath the 100-day and 200-day moving averages, Wall Street analysts remain optimistic. They forecast the stock to reach $78.60 in the next 12 months, indicating a potential upside of 18.2%. The price target ranges from a low of $60 to a high of $110.

Even though it is perceived as a risky stock with slim margins and limited appeal to investors, BBY is determined to convince potential investors that its forward-looking strategies, industry reshaping efforts, and focus on advancing in-store experiences and robust pickup/delivery operations mark it as a worthwhile investment prospect. Hence, it could be best added to the watchlist.

Will United Parcel Service (UPS) Soar Despite Ongoing Controversy?

 The past few weeks have been challenging for logistics giant United Parcel Service, Inc. (UPS) as it faced the prospect of a crippling labor strike if the company did not agree to a new contract containing the demands put forward by the International Brotherhood of Teamsters, the labor union representing the nearly 330,000 workers of UPS.

 The Teamsters have been demanding better pay, especially for part-time employees, and improved working conditions. The workers were scheduled to go on strike from August 1, 2023, without an agreement. However, UPS and Teamsters reached an agreement on July 25, 2023, potentially avoiding the strike, which could have crippled U.S. supply chains and impacted the economy.

 Earlier in June, UPS announced its agreement with Teamsters on new heat safety measures, which build upon the company's important actions in February. The company has agreed to equip newly purchased U.S. small package delivery vehicles with air conditioning starting January 1, 2024. After equipping over 95,000 package cars with a cooling fan, UPS will install a second fan in vehicles without air conditioning by June 1, 2024.

 It also agreed that exhaust heat shields will be included in the production of new package cars and will be retrofitted into existing package cars within 18 months of contract ratification. Despite these agreements, UPS and Teamsters remained at odds over pay and benefits for part-time workers that comprise a significant part of UPS’ workforce.

 The deadlock was finally broken a few days before the potential strike as UPS and Teamsters reached a preliminary labor deal that included raises for full- and part-time workers. Under the tentative agreement, all UPS union employees would receive a $2.75-an-hour raise this year and a $7.50-an-hour pay increase over the next five years. Its part-time workers’ pay would start at $21 an hour, up from the $16.20 per hour currently.

 Teamsters General President Sean O’Brien said the agreement was worth $30 billion. In a statement, O'Brien said, “We’ve changed the game, battling it out day and night to ensure our members won an agreement that pays strong wages, rewards their labor, and doesn’t require a single concession. This contract sets a new standard in the labor movement and raises the bar for all workers.”

 UPS CEO Carol Tomé said, “Together, we reached a win-win-win agreement on the issues that are important to Teamsters leadership, our employees, and to UPS and our customers. This agreement continues to reward UPS’s full- and part-time employees with industry-leading pay and benefits while retaining the flexibility we need to stay competitive, serve our customers and keep our business strong.”

 The five-year agreement is subject to union members' voting and ratification from August 3 till August 22. UPS released its second-quarter earnings with its EPS coming 4 cents above the consensus estimate, while its revenue missed the Street estimates by $1.06 billion.

 After its second-quarter earnings report, UPS lowered its revenue estimate by $4 billion. It now expects its fiscal 2023 revenue to be $93 billion, and the company also lowered its adjusted operating margin to 11.8%, down from the previous estimate of 12.8%. It expects a capital expenditure of $5.3 billion.

 UPS’ stock has gained 4.8% in price year-to-date. However, it has declined by 7.4% over the past year.

 Here’s what could influence UPS’ performance in the upcoming months:

Disappointing Financials

 UPS’ total revenue for the second quarter ended June 30, 2023, declined 10.9% year-over-year to $22.06 billion. Its adjusted operating profit decreased 18.4% over the prior-year quarter to $2.92 billion. The company’s adjusted operating margin came in at 13.2%, compared to 14.4% in the prior-year quarter.

 Its adjusted net income declined 24.1% year-over-year to $2.19 billion. In addition, its adjusted EPS came in at $2.54, representing a decline of 22.8% year-over-year.

Mixed Analyst Estimates

 Analysts expect UPS’ EPS and revenue for fiscal 2023 to decline 17.9% and 3.7% year-over-year to $10.63 and $96.59 billion, respectively. Its EPS and revenue for fiscal 2024 are expected to increase 9.9% and 4.3% year-over-year to $11.68 and $100.77 billion, respectively.

Mixed Valuation

 In terms of forward non-GAAP P/E, UPS’ 17.14x is 4.3% lower than the 17.90x industry average. Its 11.20x forward EV/EBITDA is 0.4% lower than the 11.25x industry average. Likewise, its 14.33x forward EV/EBIT is 8.5% lower than the 15.66x industry average.

 On the other hand, in terms of forward Price/Book, UPS’ 7.19x is 175.6% higher than the 2.61x industry average.

High Profitability

 In terms of the trailing-12-month net income margin, UPS’ 10.90% is 74.9% higher than the 6.23% industry average. Likewise, its 16.23% trailing-12-month EBITDA margin is 20% higher than the industry average of 13.53%. Furthermore, the stock’s 4.88% trailing-12-month Capex/Sales is 67% higher than the industry average of 2.93%.

Solid Historical Growth

 UPS’ revenue grew at a CAGR of 9.7% over the past three years. Its EBITDA grew at a CAGR of 16.7% over the past three years. Moreover, its EPS grew at a CAGR of 35.8% over the past three years.

Bottom Line

 The agreement UPS reached with Teamsters will cost it $30 billion in additional spending over the five-year contract period, increasing its costs significantly.

 Additionally, the threat of the strike still lingers as many union members could vote against the ratification as they were not pleased with the $21 per hour pay for part-time workers. They were expecting a wage of around $25 per hour.

 Furthermore, UPS faces stiff competition from FedEx Corporation (FDX). Given the mixed analyst estimates and valuation, waiting for a better entry point in UPS shares could be wise.

Will United Parcel Service (UPS) Stock Hold Strong Against Strike?

Last month, United Parcel Service, Inc. (UPS) and the Teamsters union, representing 340,000 full-and part-time UPS employees, reached a tentative deal to equip more trucks with air conditioning systems. Under the agreement, UPS said it would add air conditioning to all larger delivery vehicles, smaller sprinter vans, and brown package vehicles purchased after January 1, 2024.

Existing vehicles wouldn’t get that upgrade, but they will have other additions like two fans and air intake vents.
However, negotiations broke down last week between UPS and its Teamster-represented workers, just weeks before their contract is set to expire on July 31.

Negotiations Collapse Between UPS and Teamsters

Talks between the shipping giant UPS and the union fell apart Wednesday last week, increasing the possibility of what would be one of the largest strikes in U.S. history. Representatives from UPS and the Teamsters failed to reach a deal on a new contract, blaming each side for walking away.
“Following marathon negotiations, UPS refused to give the Teamsters a last, best, and final offer, telling the union the company had nothing more to give,” the Teamsters said in a statement.

The union claimed that UPS “walked away from the bargaining table after presenting an unacceptable offer,” which the UPS Teamsters National Negotiating Committee “unanimously rejected.”

UPS, meanwhile, said in a statement, “The Teamsters have stopped negotiating despite historic proposals that build on our industry-leading pay. We have nearly a month left to negotiate. We have not walked away, and the union has a responsibility to remain at the table.”

“Refusing to negotiate, especially when the finish line is in sight, creates significant unease among employees and customers and threatens to disrupt the U.S. economy. Only our non-union competitors benefit from the Teamsters’ action,” UPS added while calling on the Teamsters to “return to the table to finalize this deal.”

No additional negotiations are scheduled, according to the Teamsters.

Last month, rank-and-file UPS Teamsters authorized a strike, and the union stated that UPS members would not work beyond the expiration of the current contract.

Union’s Demands

The Teamsters are fighting to win an agreement at UPS that “guarantees better pay for all workers, eliminates a two-tier wage system, increases full-time jobs, resolves safety and health concerns, and provides stronger protections against managerial harassment.”
UPS and the Teamsters have made some progress since negotiations commenced earlier this year. The two sides agreed on heat safety that UPS said would equip all newly purchased U.S. delivery vehicles with AC beginning January 1 next year.

Furthermore, both sides agreed to end a two-tier wage system for drivers, establish Martin Luther King Jr. Day as a full holiday, and end forced overtime on drivers’ day offs.

The union is still pushing to raise wages for part-time workers at UPS, with leaders pointing to the company’s increase in profits during the pandemic.
“It’s an extremely tough job. And when you talk about the part-timers, their part-time wage rate right now is about $16 per hour,” Teamsters General President Sean M. O’Brien said. “We want to establish a livable starting wage for part-timers, but also make sure we reward those part-timers who work through the pandemic.”

A Potential Strike by UPS Workers

Members of the Teamsters voted nearly 97% in favor of authorizing a strike to start on August 1 if there is no agreement in contract talks between the shipping company and the union.

Sean M. O’Brien said, “This vote shows that hundreds of thousands of Teamsters are united and determined to get the best contract in our history at UPS. If this multibillion-dollar corporation fails to deliver on the contract that our hardworking members deserve, UPS will be striking itself. The strongest leverage our members have is their labor and they are prepared to withhold it to ensure UPS acts accordingly.”

Regarding this, UPS said it remains confident that there won’t be a strike this time.

“The results do not mean that a strike is imminent and do not impact our current business operations in any way,” the company said. “We continue to make progress on key issues and remain confident that we will reach an agreement that provides wins for our employees, the Teamsters, our company and our customers.”

If a strike does happen, it would be the largest against a single employer in America’s history, as the package delivery company is the biggest unionized employer in the sector and is extremely crucial to the country’s economy.

The last time UPS workers went on strike was in 1997, which significantly damaged the company and the economy. A UPS strike by 185,000 workers brought the shipping giant’s operations to a standstill, costing it $850 million and sending some customers to its rivals.

The strike that lasted for 15 days slashed package deliveries, overwhelmed the United States Postal Service and FedEx Corporation (FDX), and majorly hurt businesses nationwide.

Will The Company and The Economy Take a Hit If a Deal Isn’t Made This Time?

UPS is one of the largest shipping companies in the United States, with a 2022 revenue of $100.30 billion. According to the global shipping firm Pitney Bowes, UPS shipped 5.2 billion U.S. parcels in 2022, representing approximately a quarter of all packages (21.2 billion) delivered nationwide.

Moreover, the shipping giant’s annual profits in the past two years are close to three times what they were pre-pandemic. UPS returned about $8.6 billion to shareholders in the form of dividends and stock buybacks in 2022 and forecasts another $8.4 billion for shareholders this year.

UPS claims it delivers nearly 6% of the country’s gross domestic product (GDP). The company plays a vital role in the smooth movement of goods the economy depends upon. That means if the UPS Teamsters go on a strike, there would be far-reaching implications for the economy, particularly the supply chain, which is still recovering from pandemic-related disruptions.

Moreover, these years since the pandemic have been a stark lesson to what happens to the economy when the supply chains are disrupted or don’t work as smoothly as expected and when a shortage of truck drivers and shipping containers causes massive delays and higher prices for various goods.
So, a strike now will likely cause a logistical mess for suppliers and businesses that rely on UPS, as it did in 1997. In decades since then, the volume of parcels shipped has considerably grown due to the surge in e-commerce, while other players, including Walmart Inc. (WMT), , have entered the industry.

As per Pitney Bowes, UPS delivers about 37% of America’s total parcel volume, which is an average of more than 21 million packages a day. The remaining parcel market comprises FedEx with 33%, the U.S. Postal Service with 16%, and Amazon Logistics with 12%.

In the last strike by UPS workers almost 25 years ago, rivals to the company benefited primarily. The U.S. Postal Service witnessed a $450 million increase in revenue in 1997, and FedEx received an additional 15% of the shipping volume. Even three months following the 15-day strike, UPS volume was down 2% from industry forecasts for the crucial holiday season.

Once the strike was over in 1997, the backlog of 90 million packages met employees. Also, thousands of employees opted not to return at all, even when UPS struck a deal with the Teamsters.

This time around, although there are more shipping alternatives than there were 25 years ago, still the smooth functioning of the U.S. economy is expected to get disrupted.

FedEx issued an advisory last Thursday that there will be limits to how many shipments will get accepted from businesses if a strike commences at UPS.
“In the event of an industry disruption, FedEx’s priority is protecting capacity and service for existing customers,” said FedEx in a memo sent to its sales force. “Over the last six months, we have been actively communicating with current and potential customers and urging them to transition business while capacity is available. Time is now running out.”

Most importantly, this strike would be a massive blow for UPS as it may struggle to recover the volume of packages it would lose to its competitors.

How Should Investors Approach This News?

Shares of logistics giant UPS are under immense pressure lately as clouds of a workers’ strike continue to brew. Investors are taking the threat of a possible strike seriously.

Several UPS insiders ditched their stock over the past year. The biggest single sale by an insider was made when the Executive VP and President of International, Kathleen Gutmann, sold $10 million worth of shares at $190 per share. UPS insiders didn’t buy any shares over the last 12 months.

Insiders own nearly 0.07% of the shipping company, currently worth about $114 million based on the recent share price.

In addition, Hendershot Investments Inc. lowered its stake in shares of UPS by 3.6% during the first quarter, according to the company’s most recent Form 13F filing with the Securities and Exchange Commission (SEC). After selling 2,626 shares of UPS, the investment fund owned 70,434 shares of the logistics company’s stock.

Investors are advised to approach UPS stock with caution as the potential strike of its workers might lead to a significant fall in the transportation company’s revenue and a sharp decline in its market share as it would lose its volume of packages to its rivals.

Bottom Line

With both sides having made some progress since negotiations started earlier this year, including reaching an agreement on heat safety and ending a two-tier wage system for drivers, the union is still pushing to raise wages for part-time workers at the company.
If, at worst, the agreement isn’t made, a massive strike by UPS workers could devastate the overall U.S. economy’s smooth functioning. Also, the logistics company would be at high risk of losing its market share to its competitors and witnessing a significant decline in revenue and earnings.