Opinions
Paul Harris, CFA
Boeing
BA-N
COMMENT
Jan 16, 2017
Stock price when the opinion was issued
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Not a bad sign. On a 5-year chart, you can see somewhat of a floor in the low $120s. It's bounced off that. Is there potential? Yes, that bounce plus positive divergence gives you potential to perhaps reach the top of that trading range (+/- $240).
LMT has definitely done better over the last couple of years. BA is a bit of a recovery play here. In general, where we are in the cycle, he thinks we're in phase 2 but on the cusp of phase 3. Phase 2 is typically where materials, industrials, and technology continue to do well.
These names should do OK, but we are approaching the end of the cycle. Ultimately, at some point, we'll see rotation out of these industrial plays.
The CFO recently made comments: the troubled 737 is closer to resuming production, as the 787 could increase production later this year. Really, the 737 is more important. Also, their ailing defence business is starting to stabilize and recover, though their commercial business could improve. Maybe cash flow will improve; there are signs it is already. They won't be hit by tariffs, because 80-90% of their supply chain is in the US. They have a half-trillion-dollar backlog Last Friday, the US Air Force awarded Boeing the contract for fighter jets. He'd like to see a few good quarters of stronger results, and it's early in this turnaround though it's getting its act together. Also, Boeing enjoys little competition and airplane demand is strong.
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He hopes their troubles are behind them but as an equity investor is not sure if he sees the light at the end of the tunnel yet. There are only three companies in the world that make planes and global travel is growing. It has some logistics issues and has received some significant slaps on the wrist by the transportation board. There is a lot of debt but the order book is pretty filled up. He thinks there has been some change in management.
This industry is doing very well and they have the winds to their back. Coming out with new products. There has been good reception to the new wide-body planes, which is really helping out a lot of companies. There is certainly potential for this to go higher. They will probably benefit from better global growth, which he expects to see in the next several years.