Shares of transport titans FedEx ( FDX) and UPS ( UPS) gained on upgrades from Morgan Stanley analyst James Valentine.

Valentine lifted his rating on both stocks to overweight from underweight, saying in a research report that parcel carriers have the best prospects among transport companies in 2005. His one-year price targets are $110 for FedEx and $95 for UPS. (Morgan Stanley does and seeks to do business with companies covered in its research reports.)

FedEx was up $1.66, or 1.7%, at $96.85, while UPS gained 63 cents, or 0.8%, to $84.29.

Valentine wrote that some on Wall Street appear to be ignoring FedEx's growth in less capital-intensive parts of its business. That growth should lead to better cash flow and margins over the next few years. And while FedEx doesn't disclose international margins, Valentine believes they have doubled in recent years and will expand into the foreseeable future. Asian demand is a big catalyst.

International business should also boost UPS, the analyst contended. "We believe UPS's international focus has shifted from margin improvement to profit maximization and therefore will likely result in even faster international volume growth," he wrote.

He also expects UPS management to raise its current earnings growth guidance to about 22% from its current range of 13% to 17% when it reports earnings later this month -- the result of strong package volume both in the U.S. and abroad.