With airline travel around the world set to rebound meaningfully in coming months and Boeing (NYSE:BA) trading at a price-sales ratio of around 1, now is a good time to buy Boeing stock.
As a huge employer of blue-collar workers in the U.S. and one of only two large-scale airplane manufacturers in the world, Boeing is not going to declare bankruptcy because it is indeed too big to fail. The company has sought “at least $60 billion in U.S. government loan guarantees for itself and other American aerospace manufacturers,” according to Reuters. For the reasons listed above, it is likely to receive those guarantees.
As a result, it looks like banks will loan the company as much money as it needs to survive the crisis. Further, last month the company was reportedly poised to drew down all $13.8 billion of a loan it had obtained from a group of banks in February.
But given the loan guarantees from the federal government that will be provided to the company if necessary, that’s almost besides the point.
Airlines Will Bounce Back Sooner Rather Than Later
I expect overall demand for airplane tickets to start gradually bouncing back next month before greatly accelerating in June.
As I noted in a previous column, the government’s top experts are starting to confirm what I’ve believed for many weeks: the spread of the coronavirus will slow tremendously during the warmer months. Further, antibody tests look poised to clear millions of Americans from having to worry about the disease, and the virus will be much less deadly than the government had previously expected. Finally, drugs, including hydrocholorquine and Gilead’s Remdesivir, could prove to be more to be more effective in combating the virus than many expect.
Taken together, I think that these developments will cause fear of the virus to gradually recede in the coming weeks and months. Consequently, I stand by my previous prediction that “air travel will begin to rebound meaningfully at some point in May before accelerating greatly in June.”
As air travel rebounds to 60%-70% of normal levels over the summer, airlines will resume ordering planes, enabling Boeing’s third-quarter results to be much better than its Q2 earnings and boosting Boeing stock.
MAX Plane Should Not be a Deal Breaker
Boeing still thinks that its grounded MAX plane can resume flying in the middle of the year. The company said it recently fixed two software glitches that had been found on the plane.
About 50% of respondents to a poll whose results were disclosed in December 2019 said they weren’t aware of issues with the MAX. Most of those people will probably fly on the plane. Others said that they would fly on it after it’s been in use for six months.
A plan by Boeing’s executives to fly on the MAX should help increase confidence in it. Within a year from the plane’s return to service, I believe that it will be fully accepted by consumers, assuming that there are no further problems with it. I think Boeing and BA stock should get a boost as the plane steadily gains acceptance from consumers.
The Boeing Stock Bottom Line
Loan guarantees from the federal government will prevent the jet maker from going bankrupt or having to issue more shares of Boeing stock. Meanwhile, its Q3 results should show improvement versus Q2, and orders for its MAX plane should be strong by the end of the year. Finally, shares are trading at a very low P/S ratio of 1. Given these points, I recommend that long-term investors buy Boeing’s shares now.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he did not hold a position in any of the aforementioned securities.