Don't Panic Over UPS: These 2 Mega-Cap Stocks Are the Real Opportunity

Labor issues, declining revenue, and a risky dividend are steering investors away from United Parcel Service (NYSE: UPS), with its shares falling more than 5% over the past month.

Instead of worrying about UPS's future, there are mega-cap stocks that continue to deliver, even if they aren't in the delivery business. Here's why investors should consider Applied Materials (NASDAQ: AMAT) and Caterpillar (NYSE: CAT) instead.

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Why UPS is a risk

The delivery company is dealing with the high costs of its 2023 and 2025 Teamster contract negotiations, though it just reached a settlement regarding severance issues. These union contracts have locked in higher wage floors, which pressure margins during periods of sluggish global trade.

On top of that, the company's decision to part ways with Amazon has reduced its revenue and earnings. It posted 2025 revenue of $88.6 billion, down 2.6% and earnings per share (EPS) fell 2.8% to $6.56. On the plus side, its dividend yield is 6.7%, but with a payout ratio of 113%, that's not sustainable.

Applied Materials has a great long-term focus

Applied Materials makes highly specialized tools, services, and software for manufacturing semiconductor chips, so it benefits from the growth in artificial intelligence (AI) computing. It holds leading market share in deposition tools that add ultra-thin layers of materials (such as insulating or conducting films) to a wafer, and in etching tools that remove materials to create the intricate patterns of a chip's circuit.

In the first quarter, Applied Materials reported revenue of $7.01 billion, down 2%, due largely to falling sales in China, but EPS rose 75% to $2.54, as margins improved dramatically. That drop in sales isn't expected to last as it said it expects semiconductor equipment sales to grow by more than 20% this year. The stock is up more than 175% over the past year and more than 35% so far this year as of this writing.

Caterpillar is a surprise beneficiary of data center growth

Caterpillar, besides its heavy equipment business, dominates the market for global backup generators used by hyperscale data centers. The industrial company is seeing strong sales growth and has a large backlog for its massive diesel and natural gas reciprocating engines that provide emergency power for data centers.

So far this year, its shares are up more than 24% and over the past year, they are up more than 148% as of this writing.

Caterpillar just celebrated its 100th year as a company, and it reported record revenue of $19.1 billion in 2025, an increase of 18%. The company spent heavily on research and development and was affected by tariffs, so its yearly EPS fell 17.2% to $18.81. On the plus side, the company has a record backlog of $51.2 billion, up 71%, thanks to ongoing projects for hyperscalers such as Amazon and Microsoft.

It's all about the growth

It's much easier for growth stocks like Applied Materials or Caterpillar to improve profitability, revenue, or both than for a company like UPS to eke out better profits as its plans mean that it knows revenue will fall.

That's why, even with their share gains so far this year, Applied Materials and Caterpillar are good long-term investments. They each have unique advantages because their specialized equipment creates a barrier to competition.

James Halley has positions in Microsoft. The Motley Fool has positions in and recommends Amazon, Applied Materials, Caterpillar, Microsoft, and United Parcel Service. The Motley Fool has a disclosure policy.