This Brilliant High-Yield Industrial Stock Is Down 50%. Buy It Before It Sets a New All-Time High.

United Parcel Service (NYSE: UPS), more commonly called UPS, is one of the largest logistics companies on the planet. Despite the increasing need for its services in a world that is more digitally driven than ever, the stock has fallen 50% from highs in 2022. With a 5.6% dividend yield and a business that appears to finally be working from a position of strength, now is the time to consider adding this income stock to your portfolio.

What does United Parcel Service do?

UPS basically just moves packages from one place to another. That sounds so simple, but it is an incredibly complex process that requires a huge investment in a distribution network. This includes everything from the employees who hand you a package, to the truck they drive, to the sorting facility that the trucks come out of, to the airplanes and trucks that carried the package to the facility from another one.

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And that doesn't even take into consideration the computer systems and automated sorting assets that track the package all along the way, ensuring that it gets safely to where it was meant to go in a cost-effective manner.

Image source: Getty Images.

Replacing UPS would be very hard to do and certainly wouldn't happen quickly. The latest entrant into the delivery space is Amazon, which has spent years building out its last-mile logistics network. And it still considers UPS a valuable service provider. European companies that have tried to break into the U.S. market have basically ended up pulling back on the effort because they couldn't gain the scale needed to make it worthwhile.

UPS data by YCharts

Why does Wall Street dislike UPS so much?

With an entrenched business like the one UPS operates, you would think investors would like UPS. But the stock is down a shocking 50% from its highs. There are two pieces to the story.

Most notably, Wall Street got overly enamored with delivery companies during the pandemic. As is so common, investors extrapolated what was a temporary event far into the future, basically assuming that nobody would leave their homes ever again. And, thus, everything would end up being delivered by a company like UPS. That didn't turn out to be true and UPS' business started to show some cracks as the world got back to normal and restrictions were lifted.

Those cracks were driven by an infrastructure network that needed an upgrade and the aforementioned growth of Amazon's own distribution network. UPS didn't shrink from the challenge, and embraced change. But that required selling entire business units and making tough choices, including rightsizing its network while at the same time investing in technology to increase its efficiency.

The company's financial statements didn't look so good for a little while and they were further complicated by the asset sales and a new, and more costly, union contract.

But the back half of 2024 was a key turning point, with volume growth and improved profitability. Notably, in the fourth quarter, revenue rose 1.5% and adjusted earnings rose 11%. Given that backdrop, it would seem like a solid choice to buy this turnaround stock as improved performance hints that it could start to chase its all-time highs again.

If only management hadn't announced that it was going to purposefully cut its Amazon relationship in half.

Don't get lost in the headlines with UPS

The change in the relationship with Amazon, UPS' largest customer, will create some near-term turbulence. But Amazon's business is low-margin and UPS is looking to become more profitable by focusing on higher-margin businesses. So the move makes sense. The timing is important, too, since it looks like UPS has turned the corner with regard to rightsizing its underlying business.

In other words, this actually looks like a decision being made from a position of strength. Choosing to shift away from Amazon now could turn out to be a brilliant decision, since Amazon would likely have kept pulling away from UPS anyway.

It looks like 2025 will be another year of change for UPS, which is clearly worrying investors. But the changes taking shape now are by choice, not by necessity, because the company has found its footing again. And that makes the lofty yield, backed by an entrenched and increasingly efficient business, worth a closer look. There's no telling when Wall Street will figure out that UPS is really working from a position of strength and start to love the stock again.

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*Stock Advisor returns as of March 14, 2025

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.