Many technologies and economies function best due to a network effect. The larger the number of users in a network, the stronger and more robust it is. It’s less likely to have a single point of failure.
For investors, finding companies with a strong network effect can earn great returns. Especially when investors take advantage of a weak market to buy companies with a strong network.
One type of network is in shipping and logistics. A small company may only be able to serve a small town. But dominant players that can operate globally are likely to continue to be able to do so indefinitely.
That’s what makes the recent selloff in United Parcel Service (UPS) so compelling. Shares slid following earnings in-line with expectations, as the company noted the year was trending towards the lower end of its annual guidance.
Action to take: The leader in global shipping and logistics now goes for about 13 times earnings, a solid discount to the overall stock market. And shares yield about 3.7 percent right now, with room for more potential growth over time.
That makes shares worth buying at or under current prices.
For traders, shares look likely to rebound in the coming weeks after their recent slide.
The July $180 calls, last going for about $4.50, offer mid-double-digit returns in the coming weeks as shares stabilize and trend higher.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.