Several times over the course of the past few months, I’ve touted Boeing (NYSE:BA) as a name with a bright future. Though I’ve never called Boeing stock an outright buy, my optimism has hardly been veiled.
So far that bullishness hasn’t paid off. BA stock is currently priced right around where it was in the latter part of January, whereas the S&P 500 has at least hammered out a small gain over the same time frame.
A trio of developments — one of them a purely technical one — has finally set the stage for a bullish move as long as the usual September blues don’t take hold. But, even if they do, the usual year-end bullishness for the broad market may be just the catalyst Boeing stock needs to get off the ground.
Never Really Targeted by Tariffs
The last few months haven’t been easy ones for Boeing.
Chief among its headwinds was the sheer fear that a trade war with China could prompt that country’s government to specifically target American-made passenger jets. In fact, the country’s trade regulators created a specific list of the kinds of aircraft that would be subject to import levies, making the threat all the more real. Never even mind the added cost to Boeing for aircraft components ordered from China.
Just within the past few days though, President Trump has expressed interest in talking with China to find mutually beneficial ways to scale back the use of tariffs as a geopolitical weapon.
Interestingly, however, even if the existing trade war doesn’t cool off, the initial tariff proposition from China largely excluded the 737 MAX 8 (and bigger) passenger jet from Boeing, which is becoming a go-to solution for many airlines all over the world.
Right Plane for the Job
That particular plane may or may not ring a bell. If not, the short version of the long story is, the 737 MAX series of jets are on the small side by size standards, seating — depending on the version — just a little more than 200 passengers. For years smaller planes were difficult for airlines to operate cost effectively, but due to ever-rising passenger volumes and strides in technology, smaller is now actually better.
Rival Airbus SE (OTCMKTS:EADSY) makes a comparable plane. Namely, the A320neo. All doesn’t seem to be well with Airbus, though. For multiple reasons, customers like Boeing’s wares. Chief Commercial Officer Eric Schulz recently resigned after only nine months on the job — a short span that would indicate something wasn’t working well, sales-wise.
Meanwhile, and almost as if cued for effect, airline Air Peace of Nigeria just ordered ten 737 MAX planes. And just last month, United Continental Holdings (NASDAQ:UAL) confirmed it would be phasing out its aging 757s with Boeing’s 737 MAX 10.
Boeing stock owners who know the company well may recall production woes for the 737. Boeing, which ramped up production to record levels in June, did so at unfortunate time. Fuselages and engines are in short supply — perhaps an indirect consequence of the tariff war. The company responded aggressively though, even calling former workers out of retirement, to make up for lost time and push output above recent norms. The assembly line could be cranking out a whopping 57 units per month by next year.
It matters.
Boeing Still Bullish on China
Despite the overhanging potential of a multi-nation a trade war, demand for air travel all over the globe is poised for massive growth. As yours truly noted in November of last year, Boeing has forecast air travel will grow at an annualized pace of 4.7% through 2036. That’s the strongest long-term stretch the industry will have ever seen, inducing the need for 41,000 new planes during that period. Of that 41,000, China would need the most — about 7700 in all — as that’s where consumerism is apt to grow the most. Many of the country’s newly-developed middle class will become first-time air travelers in the foreseeable future.
That assumes the tariff war doesn’t escalate of course. And, considering China’s got its own aircraft company to lean on, there’s been no assurance that Boeing would be supplying the bulk of the 7,000 passenger jets the company says that country will need.
Boeing doesn’t sense any problems in that regard, however. Just last month it beefed up its capacity at it plane-finishing plant in Zhoushan, suggesting it still believes China will be its biggest customer within a couple of decades.
Bottom Line for Boeing Stock
The potential end to the impact of trade-war rhetoric (and the rhetoric was far more dangerous than the tariffs themselves), disruption at rival Airbus, a recovery of 737 production and a robust global economy that’s still spurring more demand for air travel collectively create the proverbial perfect storm for Boeing… after months of uncertainty.
The one thing missing thus far? Boeing stock remains grounded. With just the right nudge, though, that too could soon change.
The chart of BA stock is almost eerily indicative of the advent of the aforementioned risks to the company. The end result was the development of a sideways trading range between $317 and $372 that has since morphed into a converging set of support and resistance lines (framed in red).
Click to Enlarge
This consolidation phase, however, has not only been a chance for the bulls to regroup, it is also a chance for the important 200-day moving average line (plotted in white) to catch up with Boeing stock after a heroic run-up in 2017. The stock just recently brushed the 200-day line a couple of times though, and both times found support that became a push-off point. Coupled with the coiled-spring effect of months of non-movement, the stage may be set for another round of bullishness like the one seen last year.
Clearly, BA shares need to clear both of the resistance lines above its current value, but as more and more investors digest not just the likely end to the tariff battle, but the subsequent acceleration of economic activity, Boeing is perfectly positioned with the right planes.
A preemptive bet on such a move wouldn’t be crazy.
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.
