Editor's note: Companies around the world are embracing AI – and the cost savings that come with it.
However, what might seem beneficial in the moment could spell trouble longer term.
According to Ethan Goldman, junior analyst at our corporate affiliate Chaikin Analytics, we're seeing a situation play out where desperation to cut costs could backfire.
In today's Masters Series, adapted from the February 11 issue of the free Chaikin PowerFeed daily e-letter, Ethan details the red flags that investors need to be wary of...
Potential Trouble for This Shipping Giant's Turnaround Plan
Folks, I'll admit this change caught me off guard...
Last year, United Parcel Services (UPS) rolled out several initiatives that would help the company cut costs amid long-term struggles.
These initiatives cut thousands of roles from the shipping giant. And the cuts helped UPS post a huge earnings-per-share ("EPS") beat for the third quarter of 2025.
But those roles didn't all disappear. UPS shifted work to AI agents.
Of course, UPS was in desperate need of a turnaround. Its stock has struggled heavily in recent years.
So it makes sense that UPS would embrace new technology – and the cost savings that come with it.
Naturally, the company's weary investors loved the change...
Shares of UPS started surging in the wake of that third-quarter earnings report. They closed on February 19 at $115.54. That's about 41% higher than the stock's 52-week low of $82 per share.
The Power Gauge has also changed its tune on UPS...
The strong earnings report in October helped flip UPS from a "bearish" rating into "neutral" territory.
Today, the stock earns a "bullish" rating. The Power Gauge last saw UPS as "bullish" in mid-2023.
But recent developments with UPS could spell trouble for the company's turnaround before it has a chance to run...
The Teamsters union recently announced a lawsuit against UPS for an alleged illegal buyout plan.
According to the union, UPS is offering members a lump-sum payment to leave their jobs and never return.
The union also claims this is the second time in six months that UPS tried to get around its contract with the Teamsters.
Now, I can't comment on the legal merits of this case. But if the accusations are true, it adds to the narrative that UPS is making cuts anywhere it can – possibly in illegal ways.
You see, that isn't the only lawsuit UPS is facing...
A lawsuit filed last December accuses UPS of stealing wages from its seasonal workers in New York state. It accuses UPS of failing to record all the hours its seasonal employees worked.
It also says UPS required off-the-clock labor and even manipulated employee time cards.
Meanwhile, you might recall the horrific cargo-plane crash in Louisville, Kentucky late last year...
On November 4, UPS Flight 2976 crashed while attempting to take off. The tragedy killed 15 people – including the three crew members on board.
Investigators traced the cause of the crash to fatigue cracks in the left pylon. This component connects the plane's engine to the wing.
U.S. safety investigators said the 34-year-old plane went in for maintenance just weeks before the crash. They're asking UPS why it missed these cracks during regular maintenance.
To be clear, I'm not saying that UPS is guilty before we know all the facts in these cases.
But we know UPS's turnaround strategy aims to increase efficiency and save money.
And this strategy could backfire if it turns out the company's cost-cutting measures were illegal – or even led to the fatal crash in Kentucky.
Amid all this, I also noticed a weaker point that the Power Gauge has picked up on with UPS...
I'm talking about a special feature for our system – the earnings quality ("EQ") filter. My colleague Joe Austin helped develop it.
Put simply, the EQ filter is designed to cut through "financial engineering" and find companies that consistently produce pure cash. It's a way to look deeper into a company's earnings – and to help give a better picture of the underlying business's performance.
The filter also produces a ranking. These range from "very low" to "very high."
Right now, the Power Gauge says UPS's EQ is "low." It flags the company for converting little of its earnings into cash.
Meanwhile, the Power Gauge also picks up on some other weaker spots "under the hood" with UPS...
As I said earlier, it gives the stock a "bullish" overall rating. But when we dig deeper, UPS gets a negative grade for the Earnings category. And the Financials and Technicals categories are "neutral." Out of the four main categories, Experts is the only one with a positive rating right now.
Putting it all together...
UPS's stock has shown some strength recently. And the company is working hard on righting the ship after years of stock struggles.
I'm clearly not saying UPS is doomed. But it may be going too far with some of its cost-cutting attempts. When it comes to the recent cases, major developments – like a settlement or a verdict – could send UPS's stock spiraling back down again.
With the help of the Power Gauge, I'll be on the lookout for stronger opportunities.
Good investing,
Ethan Goldman
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