By Corey Hajim FORTUNE reporter

(FORTUNE Magazine) - What We Said

In "Go FedEx--and UPS?" (July 25, 2005), we took made the case for both big shipping stocks. In the wake of FedEx's late June announcement that fuel costs and pricing pressure might take a bite out of 2006 earnings, investors punished FedEx's stock. We thought they overreacted and suggesting buying FedEx (Research) at $83. We also liked the prospects for rival UPS (Research), at $69, noting that its price/earnings ratio was below its five-year average, while global shipping activity was expected to keep booming.

What happened

Both stocks delivered. Oil prices have remained high but haven't skyrocketed as some people feared they would. And the global economy has been robust, keeping shippers busy. FedEx (FDX, $109) is up 31% since our article appeared (vs. 7% for the S&P 500); its international business has been particularly strong. Solid revenue growth plus cost cutting helped the company beat earnings expectations for the most recent quarter.

UPS ($76), the world's largest package delivery company, has gained 10%, continuing on its trajectory of consistent growth and maintaining its industry-leading margins. What now? Both stocks are trading at around 20 times estimated 2006 earnings, which means they're not quite as cheap as they were in July. But with businesses expanding their use of global supply chains and international trade still on the rise, we think both stocks have further to fly. Top of page