I’ve been seeking out potential defense/aerospace candidates for my stock advisory newsletter, The Liberty Portfolio, because I consider this sector to be a “must-own.” This sector is truly a critical part of our country’s economy and national identity. After all, national security is — and always will be — a fundamental and core necessity for the United States.
Indeed, there are a few sectors and companies that I refer to as being baked into the very chromosomes of the American experience.
We don’t exist without them.
Therefore, they are “must-owns” in any long-term diversified portfolio. It isn’t merely things that average Americans spend their money on that belong in a portfolio, but things we utterly depend upon.
The Many Faces of Boeing
I don’t know exactly what I’ll purchase for The Liberty Portfolio, but a place to begin is Boeing Co (NYSE:BA). One of the reasons for this is that BA stock price has soared over the past several years — and for good reason. It is one the very few airplane manufacturers that caters to airlines that carry lots of passengers.
Even if you haven’t followed the rise in BA stock price, you have certainly heard of Boeing products. Surely you’ve been on a 737, 757 or 767. However, you may not be aware that BA stock price is held aloft by the ongoing order by the military for its amazing flying war machines. These include, but are not limited to:
- Chinook helicopter
- B-52 bomber
- C-17 cargo aircraft
- F/A-18 Super Hornet
- Apache helicopter
- F-15 Strike Eagle
- The Growler
- Air Force One
BA stock price has also been propelled over the years because it has four profitable segments besides the military and commercial airplane segment, which also handles aviation services support, aircraft modifications, spare parts, training, maintenance documents and technical advice.
The Network & Space Systems segment creates strategic defense and intelligence systems, satellite systems and space exploration products. The Global Services & Support segment offers integrated logistics services, as well as training systems and government services.
Finally, there is a very high margin segment in Boeing Capital, which offers financing services for operating and finance leases.
Why BA Stock Price Continues to Soar
Instead of blasting through the airport next time, stop and look out the windows. Think about the massive amount of support and logistics that goes into keeping the airport running. BA stock price reflects all the complexity surrounding every last little detail that gets these massive metal machines into the sky.
The advancement in Boeing stock price over the year is partially the result of having 28 percent of revenues derived from U.S. government contracts and, while that is a lot, it’s also been relatively consistent over the years.
What Is Boeing Stock Worth?
We are left with the question of valuation, because Boeing stock has exploded recently. However, there is always a bugaboo regarding valuation in this market. With a trailing twelve months net income of about $7.1 billion, BA stock trades at about 21 times earnings. Recent contract wins have caused analysts to boost five-year annualized projected earnings growth to 18.69%
Adding in the dividend yield of 2.23%, gives me a fair value right at 21x earnings. In fact, I give the BA stock price a premium of 10% because Boeing is a brand recognized all over the world. Its financials are terrific, with plenty of consistent cash flow and more than $15 billion of cash offset by less than $10 billion in debt.
So, it’s hard to believe, but I think BA stock is fairly valued. That’s incredible considering most blue-chips are way overvalued.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
