Boeing (BA) just reported good earnings, the 787 delays appear to be over and the company, along with Airbus (EAD.EU), picked up many orders from commercial airlines, now flush with baggage fee cash. My original reasons for owning Boeing have been fulfilled, so it’s time to move on to something more interesting.
Besides the return of good times, something negative spurred my interest in selling. The recent ordering exposed a surprising weakness: Boeing did not have a game plan for the 737, the closest thing to the long-lived DC-3. It took Southwest (LUV), American Airlines (AA) and others toying with Airbus’ redesigned A320neo to make Boeing management finally present a last minute plan to its Board. That sure sounds like Airbus one-upped Boeing, thereby adding more years ahead of wondering how it will all play out.
ITT: Special interest holding
Barron’s “Split Decision: A Real Gusher?” describes the upcoming split of ITT. In line with today’s building interest in spin-offs and breakups, ITT is breaking into three companies on Tuesday (November 1): ITT (industrial business = industrial process & flow control,), Exelis (XLS) (defense business) and Xylem (XLM) (water & waste water business).
ITT pre-November 1? A boring amalgamation.
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(Stock charts courtesy of StockCharts.com)
After the breakup? Very interesting – even exciting. Let’s take a very quick look at the three businesses:
- ITT / Industrial – With the stock market's newfound favor for industrial stocks (see my article), the timing couldn’t be better.
- Exelis / Defense – All defense companies are under the gun with the shrinking war fronts. However, there is a large need to rebuild the military branches, both to replace equipment and to move to the next generation.
- Xylem / Water – Other companies have attempted to deal with this natural resource, with differing levels of success. Xylem is a good size and could generate an exciting investment story.
Historical note: In the late 1960s, someone compiled a list of all companies with an "X" in their names and found they far outperformed the rest of the stock market. Could history repeat? We'll see.
The bottom line
Boeing could be a good investment, but I don’t have a reason why it should be a great one. Therefore, to me, it is a source of cash.
ITT, on the other hand, offers a unique opportunity: To ride its three major businesses separately, earning the new valuations given to each. Moreover, industrials have just come back into favor (after being the poster loser for the double-dip recession fear), defense is down on the rationale of “no war, no defense spending,” and water offers a special potential for gains.
Boeing and ITT performance comparison from March 2009 market low...
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Disclosure: I am long ITT.
Additional disclosure: Client positions: Long U.S. stocks and U.S. stock funds
