Boeing (BA)

Extremely well managed business with a large order backlog. A good business.

Traded down a little on the oil story. This is kind of illogical. The thesis is that with lower oil prices, the drive for new fuel efficient airplanes will be lessened, which doesn’t make a lot of sense to him. It is the competitive landscape that matters. One airline against another as beneficial margins and competitive margins lead to pricing decisions. They have a $375 billion backlog, which is pretty much clear sailing through the end of the decade in terms of their delivery schedule. Thinks you could probably see a mid-teens type long-term growth. Dividend yield of 2.95%.

7-8 years of backlogs. They would be doing better if they did not have a defense division. China is the only country increasing their defense spending.

(A Top Pick Oct 4/13. Up 13.84%.) The story is still intact, but he thinks the growth trajectory has really slowed down. Sold his holdings at around the current price. It looked like the 777’s production rate was coming down. Costs are starting to increase a little on the 787's Dreamliner platform. While it continues to be a massive free cash flow generator, it has come down to about $10-$11 billion.

Stock has pulled back a bit. They are ramping up on new programs, which tend to be a drain on cash flow initially. Increasing production, and as we get further into the program, they should be generating a lot more cash. Have a very large backlog. Once the cash flow starts coming in, she expects it will be buying back stock. This is an attractive entry point. She has a target in the $150 range.

She likes this. There may be some concerns that maybe the cycle has peaked, but commercialization is kind of a long-term secular trend and particularly in emerging markets, demand is quite strong, and in developed markets there is going to be replacement demand. The company is increasing its production rates on various planes. Backlog will not be as strong as it was a year ago, but it is still a very strong backlog. It can become a very strong cash flow story a couple of years out when their R&D investments start to taper off. When that happens, she can see the company returning a lot of cash to shareholders.

Closed at $124.11 and his model price is $102.78, a 17% downside. Doesn’t qualify in any of his value definitions. Book Value is only $20. With all these quasi-aviation stocks, the government is such a big buyer of military hardware, that the stocks don’t really need equity. If the US market is going to go higher, this one will do well.

(A Top Pick Aug 26/13. Up 18.05%.) If you think things are going to get difficult, you have to own this in a portfolio. Thinks of this as a core holding that you just want to own forever. When you get buying opportunities like this, you have to take advantage of it. Yield of 2.39%.

The airline industry has changed. These companies are always trying to improve. There is a lot of interest in their wide bodied jet. They have a huge backlog.

His inclination would be to take a little bit of money off the table. Feels you are paying a little bit up for the growth right now, and the valuation is at the higher end.

This is a great story. It has visibility, which a lot of companies don’t. We are seeing a $377 billion backlog for 5200 commercial aircraft. They have the 787 Dream Liner. Trading at about 16X earnings. It is a captive market. Airlines need to buy new technology and new aircrafts because they are more fuel efficient.

Thinks they will benefit from the overall shift towards the more industrial build out. More infrastructure with more people migrating into the middle class space, which means a higher amount of traffic for air travel. With the UK air show going on there is probably some healthy capability for new contracts to be signed. However, in the context of being able to extract value, ideally you would like to go to a company that has pricing power such as a component maker for them, such as United Technologies (UTX-N).

Over the last year we are seeing some distribution coming in. The highs this year are going to be tough to take out. In the next year or two they will come back to test it. It is a $120 to $140 trading range. If it goes below $120 it could go to $80. Internally the stock is starting to weaken relative to major stock indices. Tighten up stops.

Balance sheet is growing very rapidly these days. Looking at FMV, this could actually get back to its old highs of $175. Earnings are with you. Pretty good technical support of around $132. Hopefully, they can get their Dreamliner problems behind them.

An interesting timer of these companies. There are a lot of fuel cost concerns so there is a big refreshment in the product portfolio of customers such as Fedex. A very capital intensive business with long lead times. Not the type of industry she is a big fan of so she is on the sidelines here.