Stocks, like hockey players, can sometimes get thrown in the penalty box. Most of the time, the stocks deserve to be put aside by investors. However, that’s not always the case.
The market can shun stocks due to a misunderstanding of the surrounding dynamics. It can also penalize some stocks for past issues and fail to focus on future prospects. I think Ares Capital (ARCC 0.86%) and United Parcel Service (UPS 0.78%) are great examples right now. Here’s why I’d buy more of these two dividend stocks before the market figures out what it’s missing.
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Two mispriced powerhouses
Private credit has been a punching bag for financial media and Wall Street firms in recent months. Because these private lenders don’t undergo the same level of regulatory oversight as banks, there have been increasing concerns about rising default rates. The widespread sell-off of SaaS stocks, nicknamed the “SaaSpocalypse,” has also hit the private credit industry hard, as many direct lenders have significant exposure to software companies.
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These industry worries have dragged down Ares Capital. However, I think the baby is being thrown out with the bathwater in this case. Ares Capital is the largest publicly traded business development company (BDC). It achieved this distinction in part by having a disciplined underwriting process. Ares Capital’s portfolio is more diversified than its BDC peers. Its annual loss rate has also been significantly lower than the industry average.
Nearly one-fourth of Ares Capital’s portfolio is focused on software and services. What about the concerns that AI could disrupt the businesses of SaaS companies? Ares Capital doesn’t believe its portfolio is in jeopardy because it invests in software companies that are more resilient to AI disruption.
As for UPS, many investors seem to be focusing on where the company has been in recent years rather than where it’s going. Yes, UPS has felt the impact as it reduced shipping volumes with Amazon (AMZN +0.66%), its biggest customer. Tariffs have affected international shipping.
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UPS’ revenue is lower than it has been in the past. Its stock price is roughly 45% below the level from three years ago. However, the rest of the story is that UPS is a leaner, more agile business than it’s been in a long time. The company is focusing on higher margin shipments and has streamlined its operations.
CEO Carol Tomé views 2026 as “an inflection point” for UPS. I think she’s right. The package delivery giant appears to be on track for higher profitability over the next few years.
A limited window of opportunity
In my view, investors have a limited window of opportunity to buy Ares Capital and UPS at a discount. It’s only a matter of time before the market realizes its mistake with these two stocks. In the meantime, buying now locks in juicy yields: Ares Capital’s forward dividend yield hovers around 10%, while UPS’s yield is 4.1%. These are the kinds of dividend stocks you’ll want to own before Wall Street wakes up.
Keith Speights has positions in Amazon, Ares Capital, and United Parcel Service. The Motley Fool has positions in and recommends Amazon, Ares Capital, and United Parcel Service. The Motley Fool has a disclosure policy.
