Look for a chance to buy Boeing now.
You heard me right.
As someone who worked in the news business for nearly three decades, I've seen these kinds of media "feeding frenzies" take hold more times than I can count. They take on a life of their own – meaning that facts, logic and context can fall by the wayside.
And make no mistake: The grounding of the problem-plagued 787 "Dreamliner" fleet by the U.S. Federal Aviation Administration (FAA) and aviation authorities in other countries is turning into just such a media feeding frenzy – with The Boeing Co. (NYSE: BA) as the main course.
I'm referring to it as a feeding frenzy because the grounding was the culmination of 11 days of escalating, negative news coverage about the 787. The potential for battery fires was presented as the ultimate culprit, and the reason for the grounding order. But the stories that preceded that edict dealt with such unrelated issues as fuel leaks and a cracked windshield.
In other words, this firestorm has been stoked by non-expert journalists – each of them fixated on writing "a story," while not really understanding "the story."
That said, there is a safety issue here – one that Boeing badly mishandled by not getting out in front of. If we're handing out grades for crisis management, the U.S. aerospace giant gets an "F."
With that bit of background, let's take a look at what the Dreamliner crisis means for Boeing – both the company and the stock.
My reference point on this crisis is very different from what you'll see in the mainstream media, or even from Wall Street.
For one thing, as a onetime newsroom denizen, I know how misleading a crisis-inspired feeding frenzy like this can be. And as the co-author of the 1998 Prentice Hall book "Contrarian Investing: How to Buy and Sell When Others Won't and Make Money Doing it," I often find that when most investors are trembling with fear, I'm drooling over potential profits (with a gleam in my eyes, my wife has told me on many different occasions).
Boeing's stock has increased 21.5% since we recommended it to Private Briefing subscribers back on Sept. 28, 2011. Add in the dividends and the total return is 25%.
As I studied the company and its prospects over the last few days, I saw that many of the key reasons I recommended the stock in the first place continue to hold true … which is why we still like Boeing today.
Here are seven facts to keep in mind as the Dreamliner saga continues to unfold:
- Revolutionary new products often experience rocky launches: Investors are currently lauding Airbus SAS – Boeing's arch-rival in the jetliner business – as the "good" and "well-run" airliner builder. How quickly they forget. The Airbus A380 – a complex-to-build but paradigm-shifting aircraft just like the Dreamliner – has experienced multiple delays of its own, leading to slower production, cancelled orders, compensation to customers and even the ouster of top executives. Once the airplane entered service, there were also some issues involving wing cracks, as well. The upshot: Although the A380 made its first flight in April 2005 and entered service in October 2007, only 92 of the jets have been delivered. And it sold only nine of the "superjumbo" airplanes last year.
- Boeing has the financial muscle to ride this out: Even if the company has to compensate its customers for lost revenue, it won't be a crushing blow. As of Sept. 30, Boeing had more than $10 billion in cash and short-term investments, and another $4.6 billion available via a revolving credit line. In fact, Standard & Poor's Ratings Services said the crisis won't affect Boeing's credit quality, meaning the ratings agency has no plans to change its credit assessment of the airplane company.
- In the near-term, Boeing's commercial airplane business is exceptionally healthy: As stock-market researcher Trefis.com noted in a recent investment note, the company's jetliner business "had a phenomenal 2012" – which bodes well for the next several years to come. You see, Boeing received 1,203 net orders last year – the second-highest-ever total. To keep from falling behind, the company boosted its production rates in order to deliver 601 commercial jets in 2012, a 26% increase from 2011. But even that wasn't enough to keep its backlog from rising to 4,373 commercial jets at the close of last year – the highest in Boeing's history. Since commercial jets account for 52% of the company's market value, that's a statistic you should be happy to see.
- In the long-term, global demand will keep Boeing and Airbus extremely healthy: In its newest "Current Market Outlook" – a forecasting document the company publishes every year – Boeing predicts that global carriers will need to buy 34,000 new commercial airplanes between now and 2031. That's $4.5 trillion worth of business. Air cargo, too, will continue to grow at a predictable rate in the decades to come. That gives investors the kind of long-term visibility they rarely get. As Boeing noted, the "commercial aviation [business] has weathered many downturns in the past. Yet recovery has followed quickly as the industry reliably returned to its long-term growth rate of approximately 5% per year. We expect this trend to continue over the next 20 years, with world passenger traffic growing 5% annually." Aerial freight delivery will grow, too, with Boeing noting that the "expansion of emerging-market economies will … foster a growing need for fast, efficient transport of goods. We estimate that air cargo will grow 5.2% annually through 2031."
- The company is a dividend machine: When we recommended Boeing's shares to Private Briefing subscribers back in 2011, they were trading at $61.92 and were paying a quarterly dividend of 42 cents each – for a yield of 2.7%. Since that time, the company has boosted its dividend twice – first to 44 cents and then to 48.5 cents. That last increase – a bump of 10% – was announced in mid-December.
- The company is buying back shares: Incidentally, in addition to the dividend increase Boeing announced in December, it also said it would resume a stock-buyback program. As Private Briefing readers know, we much prefer dividend increases to buybacks, which are often just a way for the company to (usually only partially) offset its rich stock-option grants to executives. Boeing says it will buy back between $1.5 billion and $2 billion worth of its own stock in 2013 – in essence, part of the $3.6 billion that remains from a repurchase program that was authorized back in 2007. Boeing plans to start repurchasing shares after the release of its fourth-quarter results in late January.
- This isn't Boeing's first dance: In the middle 1930s, with the Great Depression still shackling the U.S. economy, the U.S Army Air Corps requested proposals for a multi-engine bomber. Boeing President Clairmont L. Egtvedt knew most companies would submit a twin-engine design. He pushed his designers to create something special – a four-engine aircraft. It was a huge risk: An earlier bomber had been leapfrogged by the paradigm-shifting Martin B-10 and a commercial design hadn't done well, either. With the economy so stressed, Egtvedt knew full well that a miscue here could bankrupt Boeing. But he thought it was worth the risk, and Boeing moved forward with its four-engine "299." The Air Corps would later reclassify it as the B-17 Flying Fortress – the bomber that helped defeat Hitler's Germany and win World War II.
That brings us to the bottom line: What's the outlook for Boeing's stock? Knowing how these news-story feeding frenzies tend to play out, I can almost guarantee that the tenor of the stories will get harsher, and the story darker, before it gets better. That will lead to concessions by Boeing, and perhaps some ousters both inside the company and at the FAA.
You can be just as certain that the stock will come under pressure.
But this is one strong company, and is a stock you want to own for the long haul. If you own it now, you can continue to hold it.
If you want to manage your risk level a bit, but don't want to sell the shares or risk getting "stopped out" via trailing stops, consider a plan where you add to your position a bit by averaging in at two or three progressively lower price points – which you establish now.
And don't forget: If the stock drops to $65, the dividend yield – currently 2.5% – jumps to 3%, a good metric for a blue chip stock.
If you don't own Boeing, but would like to, this is also a good way to establish an initial position – taking advantage of the weakness and short-sightedness of others to create a long-term profit play for yourself.
And if you'd like to join the thousands of investors we've already helped to make big money in the markets, just click here. We recently hit our first "triple" and have had three other recommendations double in our first year-and-a-half of existence, and that's just the start of our story.
And we bring this market intelligence to our members for just 26 cents a day.
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About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish… and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.