Last Dec.14 I gave you my global outlook for 2010. I recommended three key stocks that would be flying this year: The Boeing Co. (NYSE: BA), Corning Inc. (NYSE: GLW), and Cypress Semiconductor Corp. (NYSE: CY).
So far, they have all enjoyed rallies.
Boeing rose 29% in about three months, Corning has appreciated about 7%, and Cypress Semiconductors is up 11%. So all three beat the Standard & Poor's 500 Index, which is up 6% over the same time period.
I remain very bullish on all three companies, but today we will focus exclusively on Boeing.
Boeing continues to ride very powerful trends, and the company is executing well.
You see, a powerful multi-disciplinary investment approach allowed me to identify the most probable outcome from the fiscal and monetary policies implemented by countries around the globe, as well as some major trends within those economies.
One of those trends was the broadband revolution, which we have taken advantage of with picks like Cisco Systems Inc. (Nasdaq: CSCO). And the other was the battle for the third element, which we have taken advantage of in the Money Map Report.
However, in Boeing's case, the company is benefiting from the high cyclicality of airline travel. But more importantly it is in a turnaround situation with very high levels of debt. These types of situations generally are risky investments, since many things can go wrong in a turnaround and delay or cripple the company in question. Fortunately, in this instance, Boeing's ducks are in a row for a very strong take-off.
In fact, when the economic fundamentals improve, Boeing investors should reap the benefits of higher product margins and volumes, the power of leverage multiplying the return on investment, and the upside from a general reversal of a dangerous credit situation. These three tailwinds are propelling Boeing to new highs.
Let me explain.
Let's start with the global economic fundamentals. Most of Asia is already growing at scorching pace, lead by China and India. And this rate of growth demands commodities, thus helping other emerging markets, which are generally commodities producers. And Brazil's economy is accelerating not only because of higher commodity prices, but also because it's headed toward a very important presidential election cycle. For example, Vale (NYSE ADR: VALE) – the largest iron ore producer in the world and largest Brazilian exporter – just increased its prices by 90%!
At the same time, advanced economies have recovered, even though Europe has accelerated at a milder pace than the United States. Even Japan is growing faster and its consumers are showing signs of life.
So this global environment is very supportive for increased business and leisure travel both in emerging markets and in advanced economies.
It reminds me of an old joke: How do you make a small fortune in airlines? You invest a large one!
Airlines have not made money in 10 years because of overcapacity and too much competition. This is about to change. The merger of two giants will reduce competition and raise fares. In this environment, you can now make money investing in airlines.
The global economic improvement alone is already pushing airline companies to increase their orders of airplanes from Boeing and its arch-competitor, the European EADS NV, which produces the Airbus S.A.S. planes. But there are unique Boeing developments that will be factored into the stock price in the second half of the year – namely, the very strong possibility that the first orders for the 787 Dreamliner will start being delivered at the end of the year.
The 787 Dreamliner is a game-changer for the industry. I refer to my analysis on Dec. 14:
"This plane, built of light-but-strong composite materials, can achieve huge fuel efficiency and thus allows the commercial jet to fly faster, higher and for longer distances – all of it more cheaply.
When it does fly, the Dreamliner will change the face of the aviation industry. And its superior technology will assure that the airlines that put the 787 into their fleets will be able to underprice their rivals and make more money on the long-haul routes that the Dreamliner will fly.
Rivals will have to ante up and buy Dreamliners, too – or risk getting left behind."
I correctly anticipated that the organizational problems that delayed the deployment of the 787 would be corrected, and everything seems to be on track. In fact, Boeing just passed the key wing stress and fuselage tests. All of this leads me to believe that the new airplane will be on track for deliveries by the end of the year. And, since the market discounts these outcomes some six months ahead, the stock will reflect this upside as more progress is revealed in the certification process and the delivery start date approaches.
Additionally, Boeing is in line to win a $35 billion contract from the Pentagon to replace 50-year-old aerial refueling tankers. This contract is not certain, but Boeing is likely to win, since EADS' partner, Northrop Grumman Corp. (NYSE: NOC), announced that it would not bid. EADS could obtain a 60-day extension on its opportunity to bid and is "working hard" to compete. But Boeing is the frontrunner and its stock will fly much higher if the company wins.
We will learn on April 21 how Boeing did in the first quarter, but the important data will be new order growth, progress on certifying the 787 Dreamliner, and any development on EADS bidding on the tanker contract.
Technically, the stock is trading right on top of the 20-day exponential moving average and well above the 50-day and 200-day exponential moving averages. It is in a strong bullish pattern, and right now it is consolidating these levels by trading sideways and slightly down. This is consistent with a prelude to another strong leg up in the stock. As all the mentioned catalysts kick in, the stock could easily rally to $120 a share.
Recommendation: Buy The Boeing Co. (NYSE: BA) at market (**).
(**) – Special Note of Disclosure: Horacio Marquez holds no interest in The Boeing Co.
[Editor's Note: Horacio Marquez knows how to make a market call. It was Marquez who told investors that lithium was going to be big – a year before other "experts" made the same call. Now Marquez has isolated the major profit opportunities being created by the possible broadband breakdown – a situation that the news media is only just now starting to understand. To find out all about those top profit opportunities, check out this new report.]
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