Got $1,000? Here's Why I Would Buy UPS Over Caterpillar.

I'm a dividend investor with a value bias, so I prefer to buy historically well-run companies while they are out of favor on Wall Street. Buying stocks that everybody seems to love isn't something I usually do. Which is why I would buy United Parcel Services (NYSE: UPS) over Caterpillar (NYSE: CAT) today. Here's a deeper dive into my thinking.

What's wrong with UPS?

United Parcel Services is one of a small number of large package delivery companies. This is a capital-intensive business that requires a vast distribution network and impressive logistics skills. It would be difficult for a new competitor to simply start from scratch. For example, Amazon (NASDAQ: AMZN) has been building out its own distribution business for years, yet it still uses UPS' services.

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That said, UPS has been around for a long time. The industrial giant needed to modernize its operations to incorporate the latest technology and trim inefficiencies that had accumulated over the years. This is exactly what it has been doing, while, at the same time, refocusing on the company's most profitable business lines. The process basically involved high up-front costs while revenues were falling, because the company was moving away from high-volume, low-profit-margin business (such as delivering packages for Amazon).

However, signs of progress are apparent. The company's revenue per piece in the U.S. market has been improving even as overall U.S. revenue has been falling. That is management's goal, and management believes 2026 will be the inflection point for the business, with the second half expected to be stronger than the first.

But Wall Street is in a show-me mood, with the stock still offering a historically high 5.8% yield and the price-to-sales and price-to-book value ratios below their five-year averages. The price-to-earnings ratio is above the five-year average, but earnings are being depressed by the turnaround right now, so that doesn't worry me. UPS looks like an attractive, high-yield value, with the turnaround effort nearing completion.

Caterpillar is doing great and priced for perfection

Catperillar's earth-moving equipment and power products are hot commodities today. First-quarter 2026 revenue rose 22% year over year, while adjusted earnings increased 30%. The company's backlog is at record levels. It is hitting on all cylinders.

However, there's a small problem: valuation. The stock's 0.7% dividend yield is near historical lows. And its P/S, P/E, and P/B ratios are all more than twice their five-year averages. The stock is very expensive right now and, arguably, is priced for perfection. If the business were to slow down, fickle investors would likely dump the stock.

Part of the problem is that Caterpillar has gotten caught up in the hype around artificial intelligence infrastructure. Cat certainly has a place in the AI discussion, with its machinery needed for construction and its power products offering off-grid power. But given the lofty share price, it would be hard for me, an income investor with a value bias, to justify buying the stock at this price.

Long-term investors have to stick to their plan

Caterpillar is a great company that is executing very well today. I'm not trying to knock the business in any way. But paying too much for a great company can turn it into a bad investment. A $1,000 investment today would only get you one share of Cat's stock.

UPS, on the other hand, has a strong industry position and a great history. It is also nearing the end of an important business overhaul, yet it seems to me that Wall Street isn't giving it enough credit for its success. If you think long-term, you can pick up eight shares for $1k, getting an attractive yield while you wait for investors to catch on to the unfolding turnaround story.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Caterpillar, and United Parcel Service. The Motley Fool has a disclosure policy.