Three Reasons Boeing Looks Powerful

In case you missed last weekend’s Week In Review #25 on June 22, I wrote that “Value Line reported on Boeing (BA), one of America’s top lobbyists in Washington.”
(BA: Value Line Report Jun. 20: next one is due Sep. 19) [pdf file]

I like the company. Note that Boeing is in the Cara 100. 

 

The company’s financial position is strengthening. Earnings are high and will go higher, as will the dividends. The cash flow is solid given that the production slots are 100% full and will be for a few years. What’s not to like?

The stock has come off its 52-week high last July 25 at $107.83, and from the lows on March 13 of $71.58 (where there was a Buy Alert) has crept back to its current close at $75.83. There is still a possibility the company will win the large USAF contract to build flying tankers.

I believe there will be lower prices ahead due mostly to the broad market decline and also to an event like the government still denying the USAF contract. But, this is a good company and if you buy the stock at the right time, your profits going forward will be large. 

 

Wednesday, Boeing pulled down the DJIA. The stock closed at $69.64 after hitting a 52-week low of 69.16. That’s a price not seen since 4Q05, and represents a technical support level going back to the resistance at that level that held in 4Q00, and was broken in 4Q05.

I believe that the price in the 60’s is low enough to buy the stock. As there will be likely more tough days ahead for the Bulls in this cycle, there will also be lower prices ahead for BA, in all likelihood. But there is nothing wrong with taking a series of put writes with 60’s strike prices if you want to accumulate the stock.

Three factors come to mind: (i) the high oil prices will likely break down soon, which would benefit Boeing as sales contracts would then be under less pressure of being cancelled, (ii) I made a point recently that the strongest companies (i.e., in terms of fundamental metrics) may be the first ones taken down by the smart hands so that during the ensuing market Bear, those powerful gnomes are buying large blocks into weakness, and those are the first stocks that pop up in the next Bull, and (iii) the airplane manufacturing industry is hurting, not just Boeing. Wednesday, (Cara 100) Brazil’s Embraer (ERJ) also hit a 52-week low ($28.21). Yes, planes are being mothballed, but those are the old fuel-inefficient ones. And the tight credit conditions are not going to affect the purchasers for more than a year or two. So the problems are not just Boeing’s, and they will revert to normal at some point anyway.

My remarks in the WIR hold water. This is a powerful and well-managed company that has all its production slots filled for several years. The stock is one you want to be buying here in the 60’s, not back in July 2007 ($107.83 high) when HB&B were all over you to buy it from them.

Comments

[fatcat:]

Good article Bill,unfortunately I started too early,been stopped out a couple of times..Your thoughts help,because I haven't given up yet!

2008 Jun 27 06:00 AM

[trader_murf:]

I agree with analysis. Unfortunately when the stampede is under way it is tough to go against the crowd. Like fatcat above altho I started to scale in far below the top I've been thrown off horses less painful than this ride. But I think the thesis holds. The real key seems to be the price of oil, even a modest temporary pullback could give BA a nice bump enough to scale back position. I do miss the buy and hold and just pulling profits off stuff days!

2008 Jun 27 09:58 AM

[Concordius:]

You seem to be discounting future "Dreamliner" problems. Boeing has pushed the envelope in many technologies on the 787 and it is likely that not all of the chickens have yet come home to roost.
If there are more serious technical issues airlines may be only to ready to cancel aircraft they may not really need for years given the current state of the industry. I would love to buy Boeing stock again at the present low prices but they are saying nothing that provides me with confidence that there will not be further 787 delays due to past overconfidence and overwhelmed engineering capabilities.

2008 Jun 27 02:45 PM

[MNSL:]

An Excellent article.

I think this the one stock that we shoud keep in our watch list.

Oil prices will come down sooner than later. Demand for their products will increase in the long run.

Very soon we will see collapse in the commodity market similar to property market. We are in the bubble stage now

Therfore it is better to concentrate on stocks which are going to recover first while leaving hot sectors now.

2008 Jun 28 05:27 AM

[jasper:]

ATI makes light weight material for boeing et.
i'm accumulating

2008 Jun 30 10:56 AM