Air travel is back in fashion and that could mean big things for Boeing (NYSE:BA). Airline stocks, travel stocks and Boeing stock are catching a lift as a result, even if the impact will not be realized overnight.
We’re in a delicate state right now, as much of the U.S. and many parts of the world look to reopen their economies.
Over the Memorial Day weekend, we saw an uptick in travel, which has helped propel travel-related stocks on optimism that Americans are ready to travel again.
That can be seen in Spirit Airlines (NYSE:SAVE), which is up about 100% in two weeks, or Carnival Cruise (NYSE:CCL), which is 65% in the same timeframe. Even Expedia (NASDAQ:EXPE) is up close to 50% from its May 14 low.
But does it really matter?
Trading Boeing Stock
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For these stocks, it most certainly does. While traveling is still down massively year-over-year, the rebound signals that there’s an appetite to get moving again. Many consumers will still shy away from airports and cruises, but many are willing to get back on the bandwagon and as time goes on, the number will continue to increase.
During the six-day stretch between May 21 and May 26, TSA screened at least 250,000 passengers.
Three of those days exceeded 300,000 passengers. That’s the best stretch we’ve seen in months, even though it’s only about 12% what we were seeing a year ago during the same period.
For instance, the largest reading from the most recent six-day period was ~348,700 on May 22. A year ago, that figure was almost 2.8 million.
Still, the idea of a return to traveling has airline stocks surging and that bodes well for Boeing, which is up about 35% from its low on May 14. That rally kept shares above the $120 mark, leading to its breakout over downtrend resistance (blue line on the chart above).
Further, BA stock was able to reclaim its 20-day and 50-day moving averages, as the former looks to cross above the latter. Next Boeing will face its 23.6% retracement near the $150 mark. If it can clear this level, shares may have the 38.2% set as the next upside target, all the way up near $188.
On a decline, I want to see the 20-day and 50-day moving averages act as support. Particularly if Boeing stock can’t clear the $150 level. Below these marks puts $120 back in play.
From a trading perspective, bulls have the momentum.
Investing in BA Stock
While bulls may have the short-term trading momentum on their side, that does not mean it’s on their side when it comes to investing in Boeing.
Boeing’s business has been suffering major setbacks for a while now. Remember, more than a year ago its second 737 MAX plane crashed, this one with Ethiopian Airlines. Since then, it’s encountered plenty of headwinds, ranging from canceled orders to regulatory issues.
To be clear, those issues began before the novel coronavirus wreaked havoc on the global economy. How long will it before airlines — which are bleeding cash like crazy — start ordering more jets for their fleets? Likely awhile.
Boeing is a major defense company and has proven that there’s demand for its debt offerings. In that respect, it won’t go under and I don’t expect it to. But that doesn’t mean the path to profits will be easy. As complex a situation as it is, the outcome is very simple. Boeing stock is suffering because Boeing’s business is suffering.
Boeing recorded zero sales last month, the second time it has done so this year. Another 108 orders for the 737 MAX were canceled while Boeing has delivered just 56 planes this year, down almost 70% year-over-year.
Analysts expect another loss this year, but forecast earnings of more than $8.70 per share in 2021. If it comes to fruition, Boeing stock trades at 18.4 times next year’s earnings estimates.
That’s somewhat palatable, but there are a lot of unknowns, starting with the accuracy of that estimate. On top of that, what will Boeing’s debt situation look like? BA could heat up as a trade, but I’m skeptical over the next six to 12 months.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. Kenwell did not hold a position in any of the aforementioned securities.
