Boeing Co (NYSE:BA) was looking more like a rocket ship rather than a plane gradually gaining altitude. But those robust gains — up 90% in 2017 — have been shot down. Boeing stock has tumbled from a high of $371 in February to about $311 at its recent low.
The question now — is the decline enough to make investors become buyers of BA stock?
Obviously, Boeing is operating in a great secular growth theme. The solid results from companies like Delta Air Lines, Inc. (NYSE:DAL) and United Continental Holdings Inc (NYSE:UAL) highlight this theme. In fact, in October the International Air Transport Association said it expects 7.8 billion passengers to fly in 2036. That’s almost double the approximately 4 billion passengers in 2017, showing a steady, yet long, runway of potential. To account for these passengers, airlines need more jets.
Trade War Worries for Boeing Stock
Despite this long-term theme, one concern for Boeing stock has been the escalating trade war between the U.S. and China. President Trump hasn’t been shy about the TPP or NAFTA deals and has taken up a particular issue with China’s trade. There’s always the concern that tariffs on certain components or parts could be levied against U.S. plane-makers, although both sides (China and the U.S.) don’t seem particularly interested in crushing the economy over a staring contest.
For China’s part, which in my view has less to lose than the U.S., even threw out a bone for the U.S. It’s willing to lift its joint venture (JV) regulations, which prevents a number of foreign companies from having sole access to operating in China. Perhaps most well known is how JVs impact companies like General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F).
However, the JV lift also impacts helicopter, plane and drone manufacturers too. So perhaps BA will come out relatively unscathed from all the trade war worries.
Valuing Boeing Stock
Analysts expect modest revenue growth for BA, with 4% and 5.8% growth this year and next, respectively. On the earnings front though, Boeing stock is going to be a big winner. Consensus expectations call for 37% growth this year and another 18.5% growth in 2019.
Talk about improving fundamentals, as margins should continue to glide higher on these results. Despite steady earnings growth and its massive cash flow, Boeing stock had a pretty cheap valuation a few years ago. At 24 times this year’s earnings and 20.4 times forward estimates, BA stock isn’t dirt cheap anymore.
But with almost 40% earnings growth, investors may sleep just fine at night. Another reassuring note? Boeing’s dividend, which it’s paid for 75 consecutive years. It recently gave a big boost to its buyback and bumped its dividend by 20%, now up 250% over the last five years.
Trading Boeing Stock
From its highs in late-February to its lows in late-March, Boeing stock fell about 16% in four weeks’ time. However, since closing near $320 a few weeks ago, Boeing has been on a steady climb higher.
That $340 has not been a significant level for long. In early March, it looked like this level might hold as support. Unfortunately for bulls, that was only a short-term realization, as BA stock quickly broke below and ultimately found this level to be resistance over the past month.
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But $340 may prove to hold up as resistance too. BA’s move to $341 on Wednesday was encouraging, but one that definitely didn’t inspire unflappable confidence. For the record, Boeing stock also pushed above its 50-day moving average in the move, another encouraging sign. The stock isn’t overbought and has momentum working in bulls’ favor, as indicated by the chart’s blue circles.
Bottom Line on Boeing Stock
So where does that leave us?
If BA stock breaks through $340 with some authority, look for this level to act as support. A run to $350 would be on the table and ultimately a retest of its $370 highs would in the cards. If Boeing fails to break through $340, there’s still some hope for bulls. Just below at $330 is strong trend-line support and below that, at $322, is the 100-day moving average.
In a nutshell, we’d rather be buyers of Boeing stock on a dip than a seller on the rips.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
