In Focus: Boeing
Updated: Dec 29, 2019
Thanks for checking out this week's In Focus, our look into a company, companies, or markets that made the Wall Street news cycle. This week we bring Boeing in focus.
After last week's fatal crash of Ethiopian Airlines flight 302 involving Boeing's (BA) 737 Max airplane, the company has remained in the news all week. The stock, which closed on March 8, 2019 at $422.54 per share closed this week at $378.99 per share. Sadly this marks the second major incident for the 737 Max, the first occurring last October, when Lion Air Flight 610 from Jakarta, Indonesia crashed in the Java Sea shortly after take off.
The 737 Max is supposed to be the Boeing plane that replaces it's older models, and prior to last week it was on its way to doing just that. As of January 2019 Boeing had 5,111 orders for its 737 Max, with less than 500 delivered. But now with two major incidents in six months, will those orders hold up?
Adding to the question of whether or not orders will hold, several countries have placed a no-fly restriction on the 737 Max, including China, Canada, the United Kingdom, and the United States.
This isn't the first major issue for Boeing. In 2013 the company's 787 Dreamliner experienced electrical problems, which were traced back to the planes lithium ion battery. Five incidents in five days led to the 787 Dreamliner being grounded.
What's an investor to do?
In 2013 the stock did pull back slightly, but then it went on a massive bull run. In the beginning of 2013 Boeing was trading in the $74 to $78 per share range. If an investor had used the bad press in 2013 to accumulate Boeing shares, that investor would have seen their investment increase by over 500%.
This is the same case now with Boeing, BUY it on the bad news. On the daily chart for Boeing the 200 day moving average sits at $358.75 (the blue line on the chart above). I recommend buying Boeing off of the 200 moving average, if you have the patience to wait.
The company has solid revenue, revenue did dip in 2016 but went back up in 2017 and 2018. According to Yahoo Finance revenue is expected to increase by 10% in 2019. Aside from the revenue, the company generates tons of free cash flow and pays a 2.2% dividend yield ($2.05 per quarter). Cash, cash equivalents, and short-term investments have been decreasing since 2013, while long-term debt has been increasing over the same time span, that's not idea, but in this case I'll deal with it. I can understand that there was a new mission and new plane, so money had to be spent.
The recent incidents have been terribly tragic, our thoughts and prayers go out to the families and friends of the crew and passengers on Ethiopian Airlines flight 302 and those of Lion Air Flight 610.
We believe that Boeing will work non-stop to find what the issue is and get it corrected ASAP. As we mentioned, the company has over 5,000 orders for the 737 Max and has only delivered a small percentage of those orders so far. In order to maintain their current orders and secure more in the future Boeing needs to address this issue quickly, and that is what we would be investing in. The anticipation that Boeing will correct what is wrong and get back to the business of building and delivering safe airplanes.
This is where I leave you with a Buy on Boeing. Thanks again for checking out this week's In Focus, may your next investment be your best investment.