The other day I was looking over my portfolio to make changes based on what my valuation model suggested. One of the stocks in my top 10 holdings, Universal Forest Products, Inc (UFPI), came up as a stock to underweight based on relative valuation. UFPI is a pretty inexpensive, low growth stock, and it had a small run in the last few months.

As I often do with stocks in which I have a short term gain, I give some pause to selling. My model predicted a .44% increase in May, so its not like I was bearish on the stock, just thought there might be better alternatives in other securities. So I took a quick look to see if it might make sense to sell a covered call against my position, collect some extra income since I don’t think the stock is going to move much in May. So I pulled up the options chain, and saw an interesting tidbit:

It is interesting to see that the volume on most UFPI options is zero. This is a small 1.89 billion market cap stock, not followed by many people. But curiously, in this list of zero options, someone tossed down a 40 contract trade betting that the stock would go from its current price ($31) to over $35 by May 17th. Granted that is only a $400 investment (40 contracts @ $.10 * 100 shrs a contract), so this isn’t likely the so called ‘smart money’, but it is curious. UFPI releases earnings Tomorrow (April 24th) after the bell – perhaps some small roller is ‘playing a hunch’ and trying to earn some extra cash.

At any rate, this raised my curiosity enough for me to hold onto my position until after the earnings release. I am not in any big hurry to sell, and maybe this is telegraphing some good news around the corner.

I have owned Boeing stock, but sold out of it last year due to a couple reasons. First, its a very large cap stock that grew a lot, and I didn’t understand why it jumped so much. My current opinion is on large cap stocks, you are competing more against institutional money that really models the company and the profits, so I don’t know if I want to try to outperform those companies with those resources.

The second reason I unloaded Boeing was more anecdotal. A group of guys I socialize with have and had worked for Boeing for the last 30 years. They were always very positive on Boeing and its management – until a few years ago. All of these employees were disgusted with management, and felt things were going downhill. I try to make a point in investing in superior management, and so this change in sentiment was enough to convince me to stay away.

With the recent drop in the price of Boeing stock due to the whole 737 Max events, I gave some thought to re-entering Boeing stock. The consensus had been that the problem is a software problem, easy enough to fix with software update. But more info is starting to come out, and now, I am beginning to think weak management is showing its hand.

This article on Quartz provides a great overview as to the issue surrounding the 737 Max. To summarize, when Airbus came out with a fuel efficient A320, Boeing had to quickly adapt the 737 to stay competitive. And to adapt the 737 to the new engines, they had to move the engines on the wing. This led to some handling problems, so they created software ‘as a kludge’ to offset the handling problem. So this is much more than just a software fix – the need for the software is due to a design flaw, which is additional complexity in the airplane. It seems this need to rush out a new plane for competitive needs may have led to deadly consequences. Also hitting the news is headlines about the approval process and the training provided to the airlines, none of it positive for Boeing.

So now, given this complexity and the headline risk, why would an airline pick the 737 Max over the A320? It seems this puts Boeing at a real competitive disadvantage. Indonesian airline Garunda already cancelled their orders for the Max – I would guess more will follow. Perhaps unsurprisingly, Boeing received no new orders for the 737 Max in March, and only 10 orders in the first quarter of 2019. Add on congressional investigations into the FAA certification process, the extended groundings, passenger perceptions of the airplane, and pilots concern related to the training, and I think the story gets worse before it gets better.

So if your bull thesis on Boeing is based on this 737 Max problem just being a software fix – think again. I think this could be the sign of cracks in the company culture and missteps by management. I think this plane that management forced out for competitive purposes could end up being a long term disaster for Boeing.