What Does a Trade War Mean for Boeing Co Stock?

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Boeing stock - What Does a Trade War Mean for Boeing Co Stock?

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On Thursday, Boeing Co (NYSE:BA) stock got hit hard, dropping 3.5% to $349.69. And yes, this did not mark the end of the deterioration. In early trading today, Boeing stock dipped below $337.

It’s true that this looks more like noise. For the past 12 months, Boeing stock has nearly doubled — creating about $100 billion in market cap.

But the recent fall could still be an ominous sign. Of course, it looks like Wall Street is getting nervous about President Trump’s trade policies. In a public announcement last week, he declared that his admiration was planning on imposing tariffs of 25% on imported steel and 10% on imported aluminum.

OK, so what does this all mean for Boeing stock? Basically, the details are still fairly vague. Keep in mind that Trump will set forth more specifics soon.

And hey, perhaps he may not even pull the trigger. After all, Trump has been known to back off on certain policies.

Note that there is already quite a bit of backlash, as seen with the plunge in the Dow Jones Industrial Average. The companies that got hit the hardest were those that have exposure to tariffs like General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F).

But there has also been swift reaction from policy makers in Europe and Asia. Even some of Trump’s own advisors are against the proposal!

Boeing Stock and a Trade War

Now if the tariffs do ultimately become reality, then I think there could be some turbulence for BA stock. First of all, aluminum is a key raw material for planes. According to Bloomberg.com, the commodity accounts for “[a]bout 80 percent of an aircraft’s weight.”

In other words, there is likely to be some pressure on margins as prices increase. Although, this could be moderated with contracts and hedges.

But there is something else that could be even more harmful for Boeing stock — that is, the potential for retaliation. Let’s face it, imposing tariffs is easy to do. It’s also important to note that Trump is using a “national security” rational, which means that other countries will not have to go through the rigorous channels when implementing their own measures.

So if there is a trade war, it could mean that Europe may take steps to protect Airbus Grp/ADR (OTCMKTS:EADSY), which would dent sales for BA. There may also be new taxes and restrictions in Asia — a critical market for selling jets.

This is particularly likely in China, which is a major buyer of Boeing jets. It would not be surprising if the government saw this as an opportunity to favor its domestic jet operators like Commercial Aircraft Corp. of China Ltd.

It’s also not encouraging that Trump has gone on Twitter Inc (NYSE:TWTR) to post comments like “Trade wars are good, and easy to win.”

Bottom Line on BA Stock

There are definitely secular trends that are highly beneficial for Boeing. According to Bernstein Research, the growth in airline passenger traffic is expected to average about 6% per year, up from 5%. In fact, BA already has about seven years’ worth of backlog.

As for the defense business, the company should also continue to drive growth. Trump’s budget includes a large increase for expenditures. More importantly, BA has a solid portfolio, such as with the F/A18 and the T-X trainer.

And finally, the tax reform law will provide a nice boost. Note that the new effective tax rate is only 16% for Boeing.

All this is great, right? Definitely. But for the most part, it seems that BA stock has already baked in a lot of good news. Consider that the price-to-earnings multiple is 26X. What’s more, it is far from clear what the impact of the new trade policies will be.

So all in all, at least for now, it’s probably best to hold off on Boeing stock.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/what-does-a-trade-war-mean-for-boeing-stock/.

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