The Farnborough International Airshow opened this morning. Farnborough is the largest air show for the industry and an event that consistently produces huge new orders for aerospace manufacturers. This year's event should bring banner orders for two American manufacturers and could boost their stocks in the weeks ahead.
General Electric (NYSE:GE) is a perennial winner at this annual shindig. The company has already stated that is expects $30 billion of orders for itself and joint venture CFM during the Farnborough Airshow. This will continue to keep the assembly lines humming at GE which already has over $200 billion in order backlog.
This event also showcases that how well positioned the company is to continue to be buoyed by faster growth in the emerging markets, especially in Asia (China and India). Asia will be the key player over the next two decades in aerospace; accounting for roughly double the large airplane orders of North America over that time frame. GE will also see continuing demand from other big ticket items (Ex, locomotives, multimillion medical equipment) in the emerging markets.
I have the shares as a long time position in my income portfolio due to their 3.3% yield and the fact the company has been aggressive in hiking payouts in recent years. The stock trades in line with the overall market multiple. I look at GE as a S&P 500 proxy with a better dividend yield.
Boeing (NYSE:BA) should continue building on its recent momentum at this airshow announcing several additional sales. The company just won an over $50 billion order from Emirates, beating out arch rival Airbus. Order backlog is already at record levels, and I would look for the company to continue to build that backlog as the result of new orders from Farnborough.
Its new Dreamliner continues to rack up orders and is driving a gap in the performance between it and Airbus which is rapidly becoming ensconced as the #2 player in the industry. Airbus just announced its A330neo that will be ready by 2017. However, this new competitor will not deliver the fuel savings of the Dreamliner; which is the primary driver of new sales in this space.
The company recently upped its estimate of demand over the next two decades to over $5T in orders encompassing more than 36,000 large airplanes driven by a huge surge in demand for air travel in Asia. It further states that it sees Airbus only getting about a third of these new orders if it does not significantly adjust its product strategy.
This leaves Boeing as the "800lb Gorilla in the room" when it comes to large aircraft orders for the foreseeable future. Given that, it is worth paying just over the overall market multiple on Boeing to pick up this long term growth play. The shares also pay a 2.2% yield.
Disclosure: The author is long BA, GE. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.