Wait for Boeing Stock to Retreat Closer to $200 Before Venturing In
Boeing (NYSE:BA) took a major hit when the world came to a standstill last year. With no flights taking place and uncertainty surrounding future travel, Boeing stock is down around 35% in the past 12 months.
Between a high of $349 in February 2020 and a low $89 in March 2020, the company lost nearly 75% of its value in the market crash.
BA stock has recovered about 125% since its March 2020 lows. Most of the returns have come since early November, reflecting, in part, the positive mood in broader markets.
In late January, Boeing released Q4 and FY20 results that raised eyebrows, indicating that the adverse effects of the pandemic may not yet be over.
Regular InvestorPlace.com readers will remember BA stock’s troubles started in October 2018, following the first of the two fatal accidents involving its 737 Max aircraft.
A Closer Look at Boeing Stock
Recent research at Trinity College, Ireland looked at Boeing’s volatility after the 737 Max crashes in 2018 and 2019.
The authors concluded that Boeing stock is unpredictable because it is affected by intra-industry movements as well as cyclical consumer demand.
The Dow 30-member is our largest exporter and the second-largest defense contractor behind Lockheed Martin (NYSE:LMT). Therefore, it gets considerable investor attention.
Although Boeing stock will likely recover in the long-run, February could still prove too early to hit the “buy” button. If you are not yet a shareholder, you may wait for a potential pullback toward $200 or even below. Here’s why.
How Recent Results Came
In addition to airplanes, Boeing manufactures and sells rockets, satellites, telecommunications equipment, and missiles. It also leases products and offers support services for them. BA stock is currently hovering at $207. The shares are still weak compared to the company’s heyday some years ago.
One factor is the continued halt in global deliveries of the 737 Max. The revenue from the Commercial Airplane sector of BA was $16.1 billion in 2020, down 50% from 2019’s $32.2 billion. The operating margin for 2019 was -20.6%, and 2020 closed with a margin of -85.7%.
Following the deadly crashes, investigators noted that the accident rate had increased to four accidents per million flights. John MacArthur of the University of North Florida notes the previous generations of the Boeing 737 averaged 0.2 accidents per million flights.
However, the 737 Max did resume flights in late December 2020. It began running two flights per day, slowly phasing in more flights each day. Boing could certainly drive revenue if it could get back to business with the 737 Max, but the decision is in regulators’ hands now.
Where BA did do well was its “Defence, Space & Security” sector. Although earnings from operations were down 41% from the previous year, revenues increased by 1%. This segment could be an important focus in the upcoming year for BA, especially if low travel volume continues.
During the fourth quarter of 2020, BA was awarded a contract by Japan for two aircraft and was also offered contracts to upgrade detection radar for the Republic of Korea Air Force. This increased revenue in the fourth quarter by 14% compared to 2019 and earnings from operations were up 1,376% to $502 million.
Put another way, the most recent results showed Boeing stock still has a long way to go to recover from its recent woes. The company is dependent on a global economy that is open for business and is ready to welcome its aircraft.
The Bottom Line on BA Stock
Boeing stock has had a significant run-up in price since late October when it was hovering around $140, but continued volatility and short-term profit-taking are likely to be with us in February.
If you do not yet hold BA shares, you may want to look for a long-term investment opportunity in BA stock around $200 or, even better, below.
The industrial giant serves both government and commercial aviation segments, not just in the U.S. but also worldwide. The aerospace leader will eventually recover from the current limbo to reach new highs. However, that will still take a number of quarters.
If you are interested in BA shares but don’t want to commit your full capital, you might also buy an exchange-traded fund (ETF) that has Boeing stock as a holding.
Examples include the Industrial Select Sector SPDR Fund (NYSEARCA:XLI), Invesco Aerospace & Defense ETF (NYSEARCA:PPA), the iShares U.S. Aerospace & Defense ETF (BATS:ITA), the SPDR Dow Jones Industrial Average ETF Trust (NYSEARCA:DIA), or the VictoryShares Protect America ETF (NASDAQ:SHLD).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
