Staking a Position Before the News Hits Could Pay Off… Big Time

Can you use the UPS contract uncertainty to your advantage?

As we enter the holiday shopping season, let’s review some opportunistic seasonal trends…

First off, holiday shopping means we’re moving into peak shipping season – and this leads directly into the unique situation that’s now facing United Parcel Service (NYSE: UPS). Consider this timeline…

  • In October of 2016, shares of UPS traded around $100. By the end of the year, they were approaching $120.
  • In October of 2017, shares of UPS traded around $110. By the end of the year, UPS zoomed up to $130.

Clearly there’s a seasonal bump that UPS gets from all those holiday shipments.

This leads us to today…

As of this morning, shares of UPS trade for $107.22. And earlier today, Citigroup downgraded UPS to “Neutral” from “Buy.”

The reason for the downgrade? A lingering contract dispute between UPS and its unionized workers.

For context, back in 1997, a UPS strike effectively shut down company operations for 16 days – which cost the company hundreds of millions of dollars.

Jump back to today. In late October, UPS wrapped up contract discussions with the Teamsters National Freight Industry Negotiating Committee. The union has already authorized a strike if members vote “no” on what UPS called its final freight division contract offer. The vote will come on November 11.

In advance of this vote, UPS warned customers it would stop picking up shipments of heavy items to avoid potential freight disruptions. To be clear, voting “no” will most likely reopen the negotiations. But UPS wants to avoid a strike as it heads into its peak business period. So there’s the opportunity…

You’ve seen the seasonal trend in UPS. An October low has led to a December pop in each of the last two years. And now, thanks to a looming strike and Citi downgrade, UPS is once again trading at an October low. If the contract situation gets settled and agreed upon, the overhanging clouds could lift – and UPS could extend higher. This is a speculative position, so getting in position now – before the news hits – could result in a very powerful winner.

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