Boeing: How Cheap Can You Buy It?

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About: The Boeing Company (BA)
by: Tom Lloyd
Summary

All the bad news is out on grounding Boeing planes.

Boeing will act quickly to put planes back in the air.

Serious sell signal at seven times normal volume.

Looking for the bottom and the pop back to the old high.

Boeing (BA) still has our fundamental/technical Hold signal and we don't expect that will change. As soon as the sellers are done, the bargain hunters will come in for the move back up to the old high. The question is how low will BA go and what are the signals to look for in order to buy BA at bargain prices?

How Cheap Can You Buy BA?

BA will keep testing the bottom until the cause of the latest crash is identified. There will be some quick results on the latest crash, however complete analysis will take a much longer time. My guess is that in a couple of months we will know whether this is best-case or worst-case scenario. That will determine how cheap you can buy BA.

Right now the factor that is driving BA price lower is the unknown cause of the latest crash. There are eyewitnesses to the crash and the black boxes, so I am optimistic that we will know something in the short term. It will bounce quickly to where it was before the latest tragedy. However, if it is a design problem, that could slow down deliveries and would affect earnings this year. Longer term, the deliveries would probably pick up. In this case, it may take BA some 12 months to return to its old high. In any case, it is a win/win situation for bargain hunters. The only question is, will it return to the old high in a few months or in 12 months?

While we are waiting for the results of the investigation, let's look at ways we can spot the bottom and buy the bargain. First, we go to our computer system and the daily report it produces for BA and all the Index stocks. Here is our "chat room" report showing stocks subscribers are following and BA is on the list, no surprise:

Chat BA

Our Fundamental/Technical Hold Signal

Our most important buy/hold/sell signal is found in the SID column near the center of the page. It is now 67 out of 100 or a Hold signal. If you go to the far right of the report you will see the SID score was a 94, buy signal last week. So there is a big drop in our computer rating as a result of the drop in price and high volume shown in red in those columns on the left side of the page.

In the D:S column we show the increasing Supply driving price down. There is a 20-day bar chart color-coded green for Demand and red for Supply so you can easily see the change driving price down. As you can see in the D:S column, we have an S6 rating where S9 is the worst. We consider S7,8 and 9 sell signals and we color code them red. BA does not yet have that sell signal, but I expect it will appear.

BA still has our Fund column "+Buy" signal so let us look at the fundamentals to see what they can tell us. Finviz shows us the key fundamental metrics and a nice chart.

Fundamental Target

Finviz shows the chart and the fundamental metrics just below the chart. The chart shows support right here around $377 where it closed today (Wednesday) and you could draw another support line near $340. A normal pullback to test the uptrend in the 200-day moving average would be usual on any bad news of a temporary nature and that average is at $360 on the chart. For those that use candlesticks, today's candlestick looks like a positive reversal signal or bottoming signal, but it has to be confirmed. We will see if $360 holds. My guess is that it will.

Looking at the fundamental metrics, the first thing that struck me was the analyst's consensus 12-month target of $444. Price was at that level, so even the slightest bad news would have resulted in a pullback. Tragic bad news brings price down to the 200-day moving average. At this price level there is a win/win situation to make 15-20% based on a conservative consensus target. You can see below the chart that analysts had targets of over $500 before this crisis.

Let's come up with our own target. Yahoo shows the average analyst estimate of earnings this year to be $20.21. Let's assume that short-term earnings will take a 10% hit due to delayed deliveries. That gives us about $18. The PEG is a bargain at 0.97, so no problem using the trailing P/E of 21 applied to earnings of $18 or 21 x 18 = $378. That would imply that buyers would come in around $320. As you can see on the chart, the recent bottom was $300. That could be the target in the worst-case scenario. Obviously, the market does not see that happening yet. The market has just given the first, early vote that $360 is the bottom to buy. However, the market does not yet know what the outcome of the investigation of the latest crash is. The market is still guessing.

Technical Target

Let's look at the point and figure chart. (Now don't go chart-phobic on me, this is simple stuff.) We are only interested in identifying support and resistance levels. This is very simply done by looking at where the xxxx columns end and where the oooo columns terminate. You can see how high it went to $444 and now we want to see how low it can go. I will tell you what it is saying. Here is the chart (and here is a link to our live charts.)

Pt fig BA

Notice the long oooo column dropping down from the $444 high and looking for a resting place or support level to bounce. This oooo column ends at $368 support and price bounces to $388 resistance shown by a new column of xxxx going up. Now the latest column of oooo is dropping looking for support. Where is that support? Support is found at the top of previous xxxx columns or the bottom of previous oooo columns.

It looks as if price is making a stand here as we noted above. Support is holding at $364 and you can see previous xxxx columns ended there. The latest xxxx column in green just took price up to $384. Today’s close is in red at $373 and dropping again. Likewise, you can see a recent ooo column ended at $352. If the market drops in March as I expect, then I think BA would test that $352 level of support again.

If the investigation turns out badly for Boeing, then you can see the next level of x and o terminations is around $330.

This chart is not magic or hocus pocus. It is simply stating the historic fact of when buyers and sellers have come into BA in the past. There is an old saying in technical analysis. There is no support when a stock is diving down until it ultimately stops diving and establishes a bottom. BA is still diving and no bottom has been established yet.

Conclusion

I think $360 is the bottom and I expect the bargain hunters to keep buying at that important support level. If the investigation turns out badly for Boeing or the next earnings report is bad, then I think price could go down to $330. In 6 months or 12 months I think BA will be retesting $444 and that makes a win/win for the bargain hunters whether they come in at $360 or $330. Our daily "chat report" shown above will give us a Confirmed buy signal in the "Cfrm" column. When we see that signal we will buy BA. We will let you know when we have that buy signal, so make sure you follow my posts.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in BA over the next 72 hours. 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.

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