How good is too good? Shareholders in Boeing (NYSE:BA) may be about to find out. Right now, things are going very good for Boeing stock. The company’s 2018 earnings, $10.46 billion or $17.85 per share on revenue of $101.13 billion, were very, very good indeed. Just since the start of the year, Boeing stock is up 34%, opening for trade March 5 at about $433 per share.
At that level, however, you’re paying more than 24 times earnings and the rich dividend of $8.22 per share yields just 1.9%. If you were in the stock five years ago, you have a gain of 252% and the dividend has tripled, meaning you’re getting AT&T’s (NYSE:T) 6.5% yield without AT&T’s debt risk.
Still, like Apple (NASDAQ:AAPL) before its recent fall, from which it has yet to recover, there are disquieting signs. BA stock is pricey. The people may be getting lazy.
The Bear Case
Most of the bear case for Boeing stock is technical.
When a stock runs ahead of fundamentals, technicians call whoa. Boeing shares dropped 4% on Mar. 4, $17 per share, before recovering part of the loss. As a short-term trade it’s getting frothy. A lot of traders seem to be picking up protection, buying options that pay off if the stock goes lower.
Boeing built a plant in North Charleston, SC some years ago to diversify production away from its Seattle base, and get lower-cost labor. It can raise, or lower staffing levels there easily, and a union contract only came into force recently.
Boeing needs that plant to function well because labor is so tight in Seattle it recently had to give Machinists a mid-contract pay raise. But the North Charleston plant is now in turmoil. While workers are enjoying bonuses the union is upset over anti-union former Gov. Nikki Haley going onto the Boeing board. A noose was also found hanging in the plant recently, indicating racial animosity still lives there.
By itself this is not enough to scream sell. But when BA stock is at nosebleed levels, it’s enough to give skittish bulls pause.
The Bull Case
There remain ample reasons for existing Boeing shareholders to love the stock.
Free cash flow is strong enough to sustain the stock’s rally, the bulls say. The new 777x rolls out this month and arch-rival Airbus is ending production of its A380, which was supposed to replace the Boeing 747.
The company is taking 80% of a joint venture with Brazil’s Embraer to compete in smaller, short-haul jets, it continues to win military contracts, offering new drones and selling planes wherever war is threatened. In its competition with Elon Musks’ SpaceX, there may be no losers. Musk is winning the headlines but Boeing is bringing in more money.
Bullish analysts insist the way is clear to a price of $500 per share. Over the longer run, it’s hard to argue with them.
The Bottom Line on Boeing Stock
Any stock is bound to pause after a run like Boeing has had. From a low of $294 per share at Christmas, it has shot up to its present level in two months with barely a pause.
The arguments against the stock are mostly technical and have to do with its current price level. If your investment horizon is short, you may not be seeing big gains, but if you’re a fundamental investor with a 10-year time horizon, it’s hard to argue against a sound dividend payer.
Next time the market falls hard, make sure Boeing is on your buy list.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AAPL.
