Learn The Stock Market And How to Trade

Learn to Recognize When the Market has Overreacted

Boeing (Ticker: BA) has been plagued with a lot of problems this year.  Insiders claiming the new 787 composite design is more dangerous in a crash do to toxic fumes during burning, constant supplier delays, and of course the most recent mechanic strike.  A lot of bad news tied in with the recent stock market plummet and there is good reasons to see the stock price at $52.42 from a high of $98.67 in the last 52 weeks.  However, is Boeing really worth nearly half what it was only one year ago? 

First, I’d like to state that this is my 9-5 industry.  I’m a lean engineer working for a supplier to Boeing, Airbus, Pratt-Whitney and others.  If you feel this may sway my opinions then take my info with a grain of salt as you probably should do with all blogs. 

Second, as far as the insider’s safety concerns I can’t believe the added few percentage points in death rate in a crash (if it is at all true) can out weigh the fact that most airlines are flying us around in 20 – 30 year old technology versus a state of the art 787.  If Boeing can provide something that cost justifies changing out the old fleet, I know I’d feel a lot safer flying.

Third, the supplier delays have had quite a bit of time now to work out within this current machinist strike and hopefully the engineers at Boeing have had time to work out their quirks too.  So the machinist strike hasn’t been as big of a hurt as if they were ready to start pumping out jets now.

Fourth, the machinist vote on the new contract today, and as far as I can tell all the local machine shops hae already called their people back full time, so the insider feel is it’s a done deal. 

Overall, I sense the market being over zealous.

The Fundamentals

First of all, the dividend yield is at 3.2% when the 5 year average of the dividend yield is only 1.5%.  The dividend should also be just safe as the payout is only about 1/3 of operating cash flow or 1/4 of the cash on the books.

The next thing I like is the PEG (Price/(Earnings*Growth)) is under 1 at 0.98.  I’ll write an article on this later, but it’s another good indicator that this is a good value buy.

The third fundamental I like about Boeing is the debt/equity = 0.873, I always like when a company has more equity than debt, it just has a more solid foundation in uncertain times, particularly tough credit times.

Technical Analysis

My favorite first screen for all value plays is Mike Klein’s Charts placing stocks on a log scale and drawing lines at +/- 1 and 2 RMS and equates these into CAGRs. 

Boeing:

Here we see the stock price has dipped below the -2RMS line.  The last time this has happened with Boeing was in the 1973 – 1975 era.  Anyone around Seattle at the time would remember the billboards stating the last one to leave please turn out the lights.  I’m here to tell you Seattle or any other part of western Washington is no way feeling that much pain due to bad Boeing conditions.  If Boeing could recover then they’ll have no problems now.  Glancing at the charts the recovery cycles seem to be around 10 years on the long side.  A recovery to the average line in 10 years would be a stock price of about $650. ($144 + 10 years of growth at 16.2%).  This would multiply your money 13 times not counting dividends in 10 years or a CAGR of 29% for 10 years!  I don’t need this good of returns to be happy with a BA investment, your needs may vary.

Short Term:

On the shorter side the 5 day MA has crossed the 20 MA with positive RSI, I’ll personally wait the MACD flips positive which likely won’t take long and the moving averages should provide good support without much resistance overhead.  For those who normally use 50 and 200 day moving averages I think these will be skewed by the big market drop for awhile and you may miss out on many opportunities waiting to cross that high ceiling.

In summary I really like Boeing from a long term fundamental stand point.  I hope your trading ventures are going well, and that you learned something about the stock market today.

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