If there’s a stock that’s the poster child for consistency, Boeing Co (NYSE:BA) is it. It’s a global company that has a sales backlog years long. Competition is limited and new entrant hurdles are massive. So its business model shall remain intact for decades. Even then, the valuation for BA stock is still humble.
It has a price-to-earnings ratio of 22X. Its price-to-sales ratio is 2X. So Wall Street is not giving Boeing stock a pass even though it has proven its worth.
Its P/E is even lower than General Electric Company’s (NYSE:GE) P/E, which arguably is now a company in shambles and its stock is at multi-year low.
Expectations from the expert analysts are also muted. None of them have a “Buy” rating on it. I’m not sure what they need to see before they say buy the darn thing.
BA stock is now trading about 7% below the average price target and about $100-per-share below the upper range. I think it’s only a matter of time before some reiterate or aver a buying opportunity.
Although today’s trade would benefit from this, it doesn’t need it to profit. I merely need Boeing stock to hold its support levels for the next few months. I am betting that the value in the stock will prevent sellers from taking this too far. It’s important to my style of trading that if they do, I want to own the shares at a discount from here.
BA Stock Trades
Click to EnlargeTechnically, so far the ascending channel is still intact. BA stock has been on a tear since the 2016 U.S. elections. It has had its fair share of presidential headlines and it has not looked back since.
Normally, I would worry about the rising wedge, but in this case, there is tangible value to guard against my risk. I am essentially getting paid today for the opportunity to buy BA shares at a 10% discount from here. Otherwise, I would have generated income out of thin air.
The Trade: Sell the BA Dec $230 naked put for $1.10. This is a bullish trade that has an 85% theoretical chance of success. Otherwise, I will accrue losses below $228.90.
Selling naked puts carries big risk, especially for a stock with a three-digit price tag. For those who want to mitigate it, they can sell a spread instead.
The Alternate Trade: Sell the BA Dec $235/$230 credit put spread, where I stand to yield 9% on risk. Both trades have about the same odds of winning and neither need a rally to do so. In fact, BA stock could fall another 10% from here and I could still retain maximum gains.
Ultimately, regardless of how careful I am, investing in stocks is fraught with danger, so I never risk more than I am willing to lose
Get my newsletter for free here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.
