Every dip in Boeing (NYSE:BA) stock is a buying opportunity, or at least that was the trend for years. Recently, this thesis came under fire as a result of the tragic 737 Max crashes. Many lives lost and our thoughts are with the families of the crash victims. From a business perspective, a single 737 Max 8 Jet model isn’t going to be the end for Boeing. But, until it is allowed to fly again, emotions will continue to run high. The negative rhetoric these days resembles that of Tesla (NASDAQ:TSLA) and the two stories are complete opposites.
BA has a decade long backlog and generates a ton of cash. Whereas TSLA currently needs several miracles just to stay alive. Yet, the two companies carry the same headline threat to their stock prices.
Boeing’s Earnings Report
This morning, Boeing management reported its quarter and investors sold Boeing’s stock down on the headline … at first. As of this writing, BA is back in the green to the tune of 1%. And therein is the opportunity.
This is a stock that has already suffered all the consequences it can suffer from its 737 Max incident, so now the upside potential makes owning BA shares the right thing to do.
Looking over Boeing’s earnings report, the metrics were fine, but the most important parts were that management pulled guidance for the year until a later date when they have more information from the authorities about the schedule for its 737 Max planes. BA also paused its share repurchase program, so that it can preserve its operating $2.8 billion cash flow (which is excellent, by the way). This is down 10% from last year’s but within reason considering the operational debacle BA has had to deal with.
Boeing did report other areas of suffering, including its commercial planes segment, which is down 17%. What’s more, its business services are flat and its showing a $3 billion growth in inventory. But management is comfortable with its cash position now that they have $7.7 billion on the books.
Boeing’s lackluster earnings report card is understandable since it doesn’t know when the ban on the 737 Max will end. Regardless, Boeing stock is gaining steam. This could be because, coming into the event, the consensus was too bearish, as if it was going out of business. The sentiment pendulum clearly shifted too far to the other side of the bullish argument.
Since there are no alternatives to Boeing’s products, the cash flow disruptions are, by definition, a mere delay. Its only competitor, Airbus, is already delivering to capacity, so BA clients have no choice but to stick with it through this crisis.
Nevertheless, I offer this for proper perspective: Boeing stock came into the earnings up 15% year-to-date, which is in line with the S&P 500. For the last two years, BA is up 102%, which is four times that of the S&P. Yes, the short-term headline threat still looms from the FAA and even overseas governments. But I trust that the engineers that built the plane know best and eventually they will be able to convince the world of the safety of their planes.
Bottom Line on Boeing Stock
In the end, owning BA shares from these levels will be a winning investment. Short term, there are levels to trade for those who prefer to be active in Boeing stock. There is an open gap to $392 per share. Above $400, Boeing stock could spur a $30 rally to close the gap that is even higher. Conversely, below $360, BA would be in danger of testing $320. The right thing to do here is to hold BA stock for the months to come. The upside opportunity far outweighs the downside risk.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
