Go FedEx--and UPS?
By Corey Hajim

(FORTUNE Magazine) – In late June, FedEx delivered some sobering news to investors. While discussing its fiscal 2005 fourth-quarter numbers, the shipper said that increased fuel costs and pricing pressure would cause its 2006 profits to fall just short of the Wall Street consensus. The stock plunged 8% that day. For the year, shares of FedEx (FDX, $83) are down 15%. That presents a great opportunity for bargain hunters.

Despite its cautious forecast, FedEx has big growth prospects. Air cargo traffic is projected to triple over the next 20 years. And FedEx's aggressive expansion into Asia has set the stage for it to capitalize on the continent's booming economy. Meanwhile, the company has increased its cash per share by three times in three years and grown profit margins. FedEx is now trading at just 16 times its current-year earnings estimates--below the S&P 500 average.

Investors looking to play the global shipping market may want to consider a package deal. UPS (UPS, $69) reiterated its bullish guidance in the wake of FedEx's selloff. The bigger of the two rivals--$3 billion in profits last year, vs. FedEx's $838 million--has the industry's fattest margins and a hoard of cash. Recently UPS announced express service in China beginning in September. Now trading at 20 times fiscal 2005 profit estimates, UPS is well below its five-year average of 26 times projected earnings and pays a tidy 1.8% dividend yield. --Corey Hajim