Yesterday we talked about some of the concerns I have for the overall market in the first quarter. The main worry right now investors should have for equities are the impacts of a much stronger dollar. This strength is starting to show up in significant currency hits to American multinationals. Pfizer (PFE), DuPont (DD), IBM Corporation (IBM), Caterpillar (CAT), Microsoft (MSFT) and McDonald's (MCD) are just a few well-known companies that have seen substantial earnings deterioration within their quarterly results.
This is causing overall S&P 500 earnings estimates to continue to come down and has spiked volatility within the equity markets. S&P Capital IQ just came out and said they now only expect two percent earnings growth in the S&P 500 in 2015 due primarily to the strong dollar. This means investors are paying almost 18 times trailing earnings for earnings growth of two percent this year. The U.S. markets remain the best house in a bad neighborhood, but this valuation seems pricey especially as earnings growth projections have come down 10% for FY2015 over the past nine months.
As I noted yesterday, I am keeping a higher amount allocated to cash than normal and am heavily underweight stocks and sectors that get a significant portion of their revenues from overseas. I have some exceptions to this direction which I highlighted yesterday including such large cap growth Blue Chip Gems as biotech juggernaut Gilead Sciences (GILD) and tech giant Apple (AAPL) which reported blow out earnings after the bell on Tuesday.
Another exception is American manufacturing icon Boeing (NYSE:BA) which I last wrote about in mid-December when the shares were trading hands at ~$120. The stock is up better than 10% since then even as the market has been challenged over that time frame.
Despite the recent gains, the shares of this aerospace manufacturer still remain attractive for long-term growth investors especially after blow-out earnings results before the bell on Wednesday.
- Core earnings rose to $2.31 a share from $1.88 a share in the same period last year, easily beating expectations.
- Revenues came in at ~$24.5 billion, more than $500 million over the consensus.
- Net orders for the quarter were $37 billion. Boeing's total backlog at quarter-end was a record $502 billion, up $12 billion from the beginning of the quarter. A half a trillion dollar order backlog is just hard to fathom. If Boeing move all manufacturing to Athens, it would solve Greece's economic problems almost by itself.
- The company used its cash flow to repurchase 7.8 million shares during the quarter for approximately $1 billion. The company also significantly increased their share repurchase authorization to a total of $12 billion.
- The company also guided to $8.20 to $8.40 a share in earnings for FY2015 which I believe will prove conservative. Revenues are expected to be in the range of $94.5 billion to $96.5 billion.
With big global companies struggling with worldwide demand, Boeing is showing it is a rarity and seeing massive demand for its airliners. Its current backlog, even if the company didn't receive any additional orders, would keep it busy for over five years with its projected 2015 production run rate.
Boeing goes for just over 15 times trailing earnings now, a slight discount to the overall market despite having more visible and consistent earnings & revenue projections than the S&P 500. The stock also pays a solid 2.7% dividend yield.
This is a core growth holding and one I add a few shares to every time the market has a significant hiccup or when investors overreact to global growth concerns or when the company issues overly conservative guidance. Over the long term, the stock continue to bound higher as the company works through its massive and growing order backlog. ACCUMULATE
