Finally more investors are coming around to liking Boeing (NYSE:BA). For the most part, the experts are late because the positive news started in May when President Trump announced at a press conference he would help Boeing. That was the day to get long. Boeing stock rallied to $240 once in June, and last week again to $225 per share.
Boeing stock bottomed already and is not done crafting a comeback. I wrote about the $225 potential target months ago. Back then the predominant Wall Street opinion was warning of imminent disasters.
The stock has been very active this year and in both directions. But those who stuck with it from March were the real winners. I remember the days when every dip in it was a reason to buy. Even this year, investors had plenty of time to get long on pullbacks.
Boeing stock rallied over $100 then gave almost the whole thing up. Still, investors doubted Boeing when it rallied a second time in five months. Last week it hit $225 again and has room for another $100 for those willing to wait.
After the initial pandemic shock wore off, BA stock became almost as reliable as the olden days. If it falls again it opens the door for another swing opportunity. The closer to $192 per share the better. If the intent is to own it for a long time then starting here is fine.
Short term, I worry more about the herd panic in equities than this one alone. The options markets can help with that.
Boeing Stock Sentiment Turned the Corner, Fundamentals Will Follow
The bulk of the risk today lies in the enthusiasm. The long term bullish sentiment is back but without the material improvements in its P&L (profit and loss). The rallies have mostly been from relief spikes on good news of things to come.
Boeing needs to unleash its earnings power to start servicing its debt. Moreover, the airlines are still bleeding cash. When your clients are struggling to survive, your own business is also in danger.
Not everyone shares my optimism. In fact, last week Boeing made the list of zombie companies which is silly. The current financials may make it seem that way but it’s far from the truth. And as for its clientele, I am confident that the airlines will come out of this crisis even stronger. They’ve built up cash reserves for it. Consequently, Boeing’s order book will fatten up once more.
When that happens then the bears will completely capitulate. Shorting a successful company that really has no competition is financial suicide. Airbus is a formidable competitor but they are alone. And when world affairs normalize, these two competitors will both be too busy to hamper each others’ businesses. Meaning they will be like one and act like a monopoly than a duopoly.
The bears will want none of that. Even if that’s not true, duopolies are great especially when the product is something as essential as airplanes.
Beware of the Headlines
BA stock these days is like a biotech that is awaiting an FDA approval headline. The consensus opinion is that it is all but a certainty that the news will be great. The regulators suggested last week that they will set the Max free. Albeit the company will be under the microscope and there will be new rules.
We are not yet out of the woods because the virus is still rampant. States are setting records with new positive cases, but the vaccines are imminent and Pfizer (NYSE:PFE) has already applied for its approval. Odds are that the first doses will get to those who need them mid-December.
Moderna (NASDAQ:MRNA) is two weeks behind Pfizer in this process and there are a slew of others not too far behind. AstraZeneca (NASDAQ:AZN) is making its own news this morning. The stock market is like a coiled spring awaiting the vaccine.
The experts are cautioning about the sell-the-news event with respect to stocks. This time it will be different because the people on Main Street are also involved. The vaccine will free the world from shackles they’ve worn for 10 months now.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.