The precipitous decline of the price of oil from a high of about $110 per barrel in mid-summer to about $50/bbl today is sending shock waves throughout the investment world. Energy sector stocks are getting pummeled, and the overall market — already in historically overbought territory — is seesawing as analysts worry that lower oil prices portend slackening economic growth.
But there’s one company that welcomes falling oil prices and should considerably profit from the trend: Boeing Co (BA), the aircraft manufacturing giant that’s not only the dominant player in its field but also a bellwether for overall economic growth.
As the cyclical aviation sector surges in tandem with recovery, BA’s coffers are increasingly full. Boeing stock is up nearly 5% in the past month, and it has plenty more runway left ahead of it.
Boeing Is Booming
The latest sales and production numbers from Boeing tell the story: the company is in the midst of an unprecedented boom. On January 6, Boeing announced that it had racked up a record number of orders and deliveries for commercial jets for full year 2014. BA reported that it booked 1,432 net orders for commercial aircraft last year, worth $232.7 billion, exceeding its previous record set in 2007. In 2013, the company posted 1,355 orders.
The company’s backlog of unfilled but confirmed orders rose to 5,789 in 2014, also an all-time high. Boeing delivered 723 passenger airliners in 2014, a record number for the second year in a row, exceeding analysts’ estimates. On the strength of this performance, management saw fit to boost its full-year 2014 core earnings per share guidance by 20 cents to a range of $8.10 to $8.30.
Here’s the icing on the cake: Boeing stock benefits from plummeting oil prices. The market has gotten clobbered lately by investor concerns about falling oil prices, but this aerospace giant is a great way to profit from cheaper energy.
After labor, the cost of fuel is an air operator’s biggest cost. Oil’s dramatic nosedive boosts the bottom lines of airlines, which always need help with their operating margins. The price of oil can make or break an airline. At the same time, the average age of U.S. airliners continues to rise; older aircraft are comparative fuel hogs. As airlines enjoy a windfall of savings from considerably lower jet fuel costs, they’re plowing the extra cash into buying newer planes that are more fuel efficient, quieter and less polluting.
Boeing Stock — A Triple Play
Boeing provides stalwarts such as the 737 and 747, models that are staples of airline fleets around the world. BA also continues to win big orders for its crown jewel: the long-haul 787 Dreamliner, a carbon-composite aircraft that’s the most advanced commercial jetliner in the world.
The Dreamliner is the quietest, most fuel-efficient passenger jet now flying the skies and its carbon-based skin is easier and cheaper for mechanics to maintain. Boeing bet the farm on the Dreamliner, and the sleek passenger jet is already proving to be a game-changing aircraft. Boeing is in the vanguard of the industry’s switch to lighter and ultra-tough carbon-composites, which is the biggest watershed in airplane manufacturing since the move from wood to aluminum in the 1920s.
In other good news for Boeing stock this week, an age-discrimination lawsuit against the company that had languished in court for nine years was tossed out by a federal judge on January 7, removing a potential multimillion dollar liability.
Boeing stock is a “trifecta” play on three interrelated trends: economic recovery, aviation resurgence and falling oil prices. The lower that oil falls, the higher this company can soar.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
