The U.S. economy continues to show signs of regaining strength and resistance to persistent threats: The effects of the Japanese earthquake, the European sovereign debt crisis, the U.S. national debt, and rising oil prices. All of these factors pose significant threats to stifling the global economic recovery.

Even after experiencing sharp declines, the U.S. stock market seems to have shrugged off these worries — at least for the time being. The U.S. economy celebrated its eighth consecutive month of rise in consumer spending in February as well as better-than-expected job growth in March.

Nevertheless, both the economy and the market have a long way to go in order to return to their pre-recession states. Given the upward economic trends of late, and the fact that there is much more room for improvement, an investment strategy should be geared towards stocks that will directly benefit from a strengthening economy.

The performance of United Parcel Services (UPS) is closely tied to the condition of the U.S. economy. As the world’s largest express delivery company, its strength depends on the health of the global economy as well as the domestic economy, which generates 74 percent of its revenues. When the economy is booming, commerce and trade are high, spurring demand for delivery services. On the other hand, when the economy is struggling, traffic volume is low and demand for delivery services falls.

UPS should be an attractive investment for reasons other than the fact that it is a cyclical stock. Other technological developments give UPS an increasingly favorable value — namely the rise of online shopping. This brings us back to a knockoff of my central question — how do you spend your time and money shopping? Over the past several years, there has been a dramatic increase in the amount of online shopping.

According to the U.S. Department of Commerce, estimated U.S. retail e-commerce sales were $165 billion in 2010. While total retail sales only increased 7 percent in 2010 from 2009, e-commerce sales surged 14.8 percent from the previous year. However, e-commerce sales still only make up a relatively small fraction of total retail sales — 4.2 percent in 2010. This means that there is still huge room for e-ecommerce sales to rise.

United Parcel Service (UPS) is in a great position to profit from increasing e-commerce sales, as the company claims to handle the delivery of more than 50 percent of goods bought online.

UPS is also appealing because of its financing activities. UPS boasts an impressive track record of generating strong cash flows and using them to buy back shares. According to the company’s annual report, UPS plans to buy back approximately $2 billion worth of its shares in 2011. When a company repurchases shares, it is investing in itself and benefiting from its earnings per share since there are fewer shares outstanding. To give you an idea of the substantial impact that the 2011 projected buybacks would have made if completed at the end of 2010, the company would have taken about 27 million shares off the market, leading to an earnings-per-share increase of approximately 2.8 percent.

An objection that one might make to investing in UPS is that the company is very vulnerable to incurring increased costs due to rising oil prices. But UPS tempers this susceptibility by imposing fuel surcharges on customers based on the U.S. Energy Department’s listed prices for jet fuel and diesel fuel. Thus, UPS is effectively able to pass on the added energy cost to customers.

In contrast to several of my past stock recommendations, such as Google and Under Armour, my recommendation for UPS is a more long-term play. This is because the economic recovery will take years and the discussed earnings’ catalysts, particularly the growth of e-commerce sales, are evolving factors and will need time to create a measurable impact.

To conclude, the investment thesis for UPS is clear: Investing in a strong company with solid growth potential is a wise way to use cash and can position an investor to profit from the burgeoning domestic and global economic recovery.

Matt Paragamian is a sophomore in the College. He can be reached at [email protected]. MoneyMojo appears every other Monday.

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