It's been a very tough 2016 for shares of Boeing (NYSE:BA) thus far with the stock down nearly 17% already. Boeing is trading near its 52-week low at this point in time and there may be no end in sight to how much more it can lose. Some say we're in an industrial recession right now thanks to the strength of the US dollar.
The company reported fourth quarter earnings results midweek last week by beating analyst estimates on the top and bottom lines but the shares took a beating nonetheless due to the poor outlook the company provided. The guidance provided was for EPS between $8.15 and $8.35 which was way below what analysts were expecting ($9.43). The lowered guidance was because the company announced it was going to delivery less commercial jets during the year when compared to last year.
Investors tend to reward or punish companies based on their forecasts rather than the results of what happened in the prior quarter. In this particular case Boeing's fourth quarter was pretty good, but guidance was horrendous. The problem here is that the company could have preannounced these results two weeks ago when they announced that they were going to cut the production rates on their 747 planes. They must have known about these results at that time and being transparent then may still have had investors exiting for the doors, but by waiting till the earnings announcement itself shows a lack of transparency.
The company currently trades at a trailing 12-month P/E ratio of 16.15, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 12.38 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $9.71 per share and I'd consider the stock inexpensive until about $146.
The 1-year PEG ratio (1.62), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 9.96%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 11.29%.
Though the stock appears attractive there is a bigger issue at hand here; the strong dollar. The strong dollar is making it more expensive for other countries to purchase our goods from us, hence Airbus will be seeing an uptick to their orders. If Airbus continues to see orders increasing Boeing may be near a top in terms of their earnings per share, which means the P/E metric will begin to float back up.
Boeing did end up buying back five million of its own shares during the quarter for $800 million and dished out $600 million in dividends to investors. Currently I don't see any support level for the stock so I believe it can continue a strong downtrend although it is relatively oversold against the rest of the market. I think the safest way to play it is by writing some out of the money puts for February if you want to own it at a lower price, that way you can at least generate some income in the process.
Or if you want to avoid Boeing altogether you might want to move upstream with owning companies like Honeywell (NYSE:HON) or Rockwell Automation (NYSE:ROK). Honeywell had a phenomenal fourth quarter and feeds into both Boeing and Airbus. Because it is costing countries more money to buy a Boeing plane right now I believe orders are transitioning over to the competitors and may cause Boeing to start discounting their planes.
As for me, I have a 14% loss in my current Boeing holding and am fine with it. I'm fine with it because I never go full bore and buy my entire position at once. I always layer in, and I layer in on a weekly basis. I am able to do it on a weekly basis because I've been grandfathered in on an old plan from my broker. It's a great deal.
Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am/we are long BA.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.