Boeing Co Stock Is Likely To Be Grounded for Refueling

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BA - Boeing Co Stock Is Likely To Be Grounded for Refueling

The bullish response to Tuesday’s headlines about — and relating to — Boeing Co (NYSE:BA) aren’t surprising. They include news that a couple of sizeable contracts were just secured, against a backdrop of industry-wide optimism that bodes well for rivals like Lockheed Martin Corporation (NYSE:LMT) and Airbus Grp/ADR (OTCMKTS:EADSY). Though a rising tide lifts all boats, Boeing stock-owners know that the tide somehow lifts their company more than it does the rest.

BA shares rebounded a bit on Tuesday, defying the market’s overall weakness. But Boeing stock still isn’t a name newcomers may want to dive into. There are still some external factors at hand that need to be worked out. And the likely way they’ll be worked out is with a little more profit-taking.

Good News for BA

By all accounts, shareholders should be (and are) cheering. Not only did Boeing win a service contract order at this year’s Singapore Airshow that’s worth more than $900 million, Berenberg Bank analyst Richard Safran posted an outlook that was sure to excite. He explained of his raised price target on Boeing stock:

“Boeing’s highly visible revenue from a large commercial aerospace backlog and contracted defense programs and service activities support sustained organic growth over the coming years. The longer-term outlook for defense has improved given rising global tensions and President Trump’s plans to increase spending in revenue terms.”

Berenberg now holds a price target of $415 on BA stock.

Yet, while Safran’s enthusiasm was largely rooted in the looming increase in defense spending, Boeing is still riding the bigger, longer-term wave of growing demand for air travel. In its most recent air travel outlook, the company foresaw demand for 41,000 new passenger jets between now and 2037. For perspective, less than 24,000 passenger jets are in use today.

Point being, Boeing is benefiting from several tailwinds.

BA: Overbought and Ripe for Pullback

The undertow is moving in the right direction. But that’s a long-term undertow that won’t let Boeing sidestep any short-term selling pressure.

It’s been an unpopular premise to present of late. The fear of missing out on gains has kept people silent and deliberately oblivious to risks. But, in the shadow of its 200% rally between September of 2016 and last month’s high, Boeing stock has been overbought and ripe for a sizeable pullback.

The sheer size and scope of the rally is a red flag, though not the only one. The trailing price-earnings ratio of 24.6 and forward-looking P/E of 20.3, as well as the aircraft maker is expected to do in the foreseeable future, are both still above long-term norms for the stock.

Even on a more subjective and less objective level though, we’ve already seen traders’ subconscious stance on BA changing.

Though one would have thought the market to be increasingly bullish right up until Boeing stock reached a tipping point in the midst of Monday’s pullback, doubts have been growing about Boeing shares since the end of November. That’s when the bullish chatter about Boeing peaked, even though the sheer amount of chatter regarding the company soared in January. All the activity suggests indecision.


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Source: ThinkorSwim

It’s not yet net-negative chatter, but it is pointed in that direction. It’s a sign that investors basically know the stock’s gone about as far as it can go for right now.

Bottom Line for BA Stock

To be clear, Boeing has been and continues to be one of the top long-term prospects on the market’s landscape. I even said as much last month. The concern is only a short-term one.

The potential short-term downside, however, is still significant enough to say this is a name to steer clear of until we see a strong downside move. Indeed, it may even be a name to get out of if you’re not truly committed to a multi-year position. A move to less than $300 could be in the making. That’s a 10% pullback, if not more, from current levels.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

 


Article printed from InvestorPlace Media, https://investorplace.com/2018/02/boeing-stock-likely-grounded-repairs-refueling/.

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