"The company has good sales, making a high end product much less vulnerable to the typical cyclical markets. Commodity prices are not that much of an issue either. Raw material cost is not as much of a concern as the engineering costs associated with the high tech components it makes. While many blue chip industries and companies lower expectations, Boeing continues to be healthy despite up and down prices."
The stock did go up, and now I want to know if it has peaked or if it will continue. The latest high is also a very strong resistance line.
Aerospace Industry May be Stable in 2013
One of the worries investors have had about the future of the Aerospace Industry is the cuts that the U.S. defense budget is making. Going into 2013 investors have had some concerns and rightly so. Defense spending is a huge business for some of the major players in this industry and the U.S. accounts for 40% of the total global defense spending. Global economic uncertainty that looms as the largest threat to defense spending for all countries could cause a reduction in orders or cancellation of existing contracts.
But, the U.S. Senate recently approved a fiscal budget of $633.3 billion. This is a bright light for the defense contracting portion of Boeing. There are cuts but there are benefits for a number of companies that benefit from this agreement (including Boeing).
- Boeing benefits from a multi-year procurement deal for the Boeing-made Army CH-47 helicopter.
- A $338 million approved budget for continued production of heavily armed vehicles agrees with General Dynamics (GD) who makes the M1 Abram tanks.
- And Northrop Grumman (NOC), the #1 contractor for missile defense systems will benefit from an approved $9.8 billion missile defense budget.
Defense contractors (including Boeing) must continue to learn to work a little bit leaner but they will not be stunned by the reduction in defense spending in 2013.
Buyback Program Gears up in 2013
Boeing is resurrecting its stock buy back program after a few years in hibernation. In its strategic plan to create value for shareholders, the company will spend up to $2 billion in buy backs and also raise the dividend by 10%. In 2007 it initiated a $7 billion buyback, but suspended it in 2009. I am not sure if it was tied to the delays it experienced with the 787 Dreamliner productions but it seems logical.
Since early November Boeing has been in a rising wedge pattern gaining about 10% in value. The stock has looked very volatile during this time with some large daily moves also. During this move up, the RSI indicator has stayed bullish showing a strong move up. The MACD also supports this as it has remained in bullish territory up high. The wedge up has kept the stock using the middle Bollinger band as support (more or less). It looks like the stock has got to make a move. Since it has touched a major resistance point, this makes sense and I would expect the stock to either pull back or consolidate and move sideways at this point.