I wrote an article on Boeing (BA) in mid September and at that time, my observations led me to the conclusion that we should expect more bearish influence on the stock in the short term. Shortly thereafter, the stock started to move up and has since slid back down to about the same point it was at when I wrote about it last. My conclusions: The stock may be forming a trading channel by which it will trade in. Is this the case?
Well, the airline manufacturer is not going to continue in a bearish pattern like some other large companies we know, namely Hewlett Packard (HPQ) because of falling revenue from lack of sales. This is not the case with the Boeing. In fact, one of its recent sales just awarded it a contract with the Royal Saudi Air Force with close of $4 billion to upgrade 68 F-15s fighters before the end of the decade. And it also reached an agreement recently with ALAFCO-the airplane leasing company out of Kuwait, finalizing an order for 20 Boeing 737 MAX 8s valued at $2 billion. These are just two examples of ongoing sales contacts that Boeing is able to pick up in an ever demanding airlines industry.
So why would a company filling so many orders have its ups and downs? Why would it not just continue moving up? One simple reason could be delays in orders. When this occurs, it plays on revenue streams. As an example, Boeing recently said the delivery of a few 787 jets to United Airlines would be delayed. The 787 "delay problem" is a larger issue Boeing has faced with its whole 787 program delayed 3 ½ years because of quality problems. This is just one example of how things do not always work perfectly for companies even though sales are strong. Things can happen that delay production and possibly revenue.
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Another reason the stock moves up and down like it does is because of the volatility of the industry that also involves a good number of government contracts. Boeing, like its industry, follows the markets up and down. Sometimes it becomes bit more volatile. This year, the stock has moved down twice while the market moved up and mid year just moved along mirroring it. It will continue to move up and down and right now I believe it will trade within a certain range.
Since mid summer, I believe it is safe to observe Boeing moving in a trading channel between (69 -77.5). It built a solid foundation around 68.70 in September and early October. These are wide swings in the market and both the RSI and MACD tend to follow the stock. I am expecting the stock to continue in the same direction (sideways with extreme moves).
This quarter, Boeing said profits fell by 6% from a year ago, but stood out from the majority of stocks when it also announced a double digit revenue increase of 13%. Few companies are doing that and it shows how healthy the company is. This is one of the reasons I believe that Boeing is a good long term investment. 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.