Plenty of sectors and individual companies have benefited tremendously from the unlikely rise of Donald J. Trump. It’s not something that’s readily advertised, given the controversies the President finds himself in. However, the tape doesn’t lie: the markets soared to all-time highs, boosted by positive economic data. Things are looking up, but I would argue none more so than for Boeing Co (NYSE:BA). If there was any investment that fully encompassed “Trumpiness,” it’s definitely Boeing stock.
With BA stock, you have the two elements that matter most for the current administration.
No.1, the company is a symbol of American business prowess. Not too long ago, frequent flyers and global travelers aspired to fly the “jumbo jet,” the colloquial name for the iconic Boeing 747. The “A380” by Airbus Group SE (OTCMKTS:EADSY) just doesn’t have the same ring to it.
Of course, Boeing stock is more than just about flying passengers. We’re Americans, and nothing could be more red, white and blue than blowing stuff up. With accusations flying that Donald Trump is Vladimir Putin’s puppet — there’s another word I won’t use — he’ll want to show some muscle. Thankfully, President Trump will keep his shirt on, and let defense contractors like BA do the talking.
In a cynical sense, the timing couldn’t be better for BA stock. Geopolitical conflicts are on the rise, particularly with North Korea. As the Washington circus act continues unabated, the need for strong leadership only heightens. That’s where Boeing stock could really get a solid boost.
Not All Roses for Boeing stock
Already, BA stock is up roughly 14% for the year. To put that into perspective, shares returned a pair of only 14% performances in 2014 and 2015.
Technical momentum isn’t a problem at all for Boeing stock. What is a dilemma are the fundamentals. InvestorPlace contributor Aaron Levitt states that “Boeing has continued to see its yearly sales decline over the last few years. Between 2012 and 2014, BA received more than 1,000 orders per year for its commercial planes. Orders fell to just around 760 in 2015 and decreased by another 100 orders last year.”
Making the situation worse is that the backorders for Boeing aircraft are primarily for the standard 737 jet. It’s better than nothing, but it is far less profitable than their wider-bodied models. The combination of reduced sales and lower-margin products have produced questions about sustainability. In short, investors may get uncomfortable with Boeing stock because of the troubling headwinds.
Also, defense contracts are not necessarily a panacea for BA stock. The vast majority of Boeing’s revenue is attributed to their commercial endeavors. If Trump isn’t willing to dial down the heated rhetoric, icy foreign relations could translate into trade wars. That’s a no-no for Boeing stock, which is heavily levered towards international sales.
BA Stock Bullishness Existed Before Donald Trump
InvestorPlace contributor Dana Blankenhorn, who is bullish on Boeing stock, doesn’t disagree with the bearish sentiment. As he readily admits, BA stock is currently riding on the coattails of Donald Trump, and not much else. The difference is whether you believe the company can go somewhere after the Trump rally fades.
Technically, what we’re witnessing is a dramatic shift in enthusiasm for BA stock.
Click to Enlarge
One has to go back to the 1980s, where Boeing stock averaged returns of 25%, to see similar interest.
To me, this signals that the BA rally is more than just President Trump and his uncanny winning abilities. I’m not taking anything away from “The Donald,” lest I receive a sharply worded tweet. Instead, I think that the optimism towards Boeing stock has been a long time coming.
If Wall Street didn’t believe in BA, shares would have collapsed years ago.
The thing about Trump is that the markets finally have a business-minded President. Rather than imposing oversight and regulations, Trump wants to rid these burdens. That’s a net positive for BA stock. So long as our commander-in-chief doesn’t go too far off the reservation, you can trust this rally.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
