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It's common for investors to look at monthly Boeing orders as a barometer of the health of the entire airline industry. But this is a dangerous way to evaluate both the airlines and Boeing Co. (NYSE: BA) stock.
According to Money Morning Executive Editor Bill Patalon, to decide if Boeing is a good pick, investors need to take a bigger picture approach than just examining monthly Boeing orders.
You see, monthly Boeing orders are a highly variable snapshot of the company's sales. For instance, May 2017 Boeing orders stood at 13. That seems low as May 2016 orders were more than 14 times higher at 186. But what May 2017's numbers don't show is the company has averaged 49 orders per month since the start of 2017.
"I tend to come at this from a higher altitude, so to speak," Patalon said. "I look at the trends over the next 20 years and see an ever-evolving global economy that will nurture worldwide travel for business, for pleasure, and for a mix of both."
Taking Patalon's lead, here's a much better, more accurate way to evaluate Boeing's profit potential...
3 Reasons to Buy BA Stock Despite May Boeing Orders
One of Patalon's biggest reasons for investing in Boeing is its backlog. A backlog is the list of orders that have been placed but not yet been filled. The backlog gives the company steady revenue and cash flow as it fills the outstanding orders.
At the end of May, Boeing's backlog stood at 5,646 planes. So far this year, Boeing has averaged 52 deliveries a month. That means the company has a backlog that stretches out nine years.
Another reason to invest in Boeing is its market outperformance is expected to continue this year. Since Patalon recommended Boeing in September 2011, the stock is up 207%, which is more than double the Dow's 97% gain.
Now, one analyst has a 12-month price target price of $225 for Boeing. That's a 12% gain from its current trading price of $198.96 per share before dividends. Historically, the Dow has gained 9.4% per year (after accounting for dividend payments).
Those market-beating returns are before you factor in the 3% dividend yield, the third reason Patalon likes Boeing stock.
"This is a company that has a proven record of taking that cash flow and giving it back to shareholders in the form of dividends, stock buybacks, and other kinds of financial engineering." Patalon said in February.
Doubling the market return and a dividend provide a great source of profit. And Patalon has an investing strategy that can make Boeing stock even more profitable than it already is.
He talks about his strategy in this exclusive video...
This Strategy Will Increase Your Boeing Profits
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The best way to buy Boeing stock is using what Patalon calls an "accumulate" strategy.
Here's how it works: First, you buy your initial block of Boeing stock. Then, you buy more every time the price pulls back below your initial purchase price.
This strategy works because you are averaging down, meaning you are lowering your average cost per share. That automatically increases your return.
For example, let's say you bought 100 shares of a company at $10. A few months later, the price drops to $9 and you buy 100 more shares. That brings your average price per share down to $9.50. When the shares hit $10 (your initial purchase price) again, you have a return of 5%.
Another way to keep adding to your initial block of Boeing stock is to reinvest the dividend. That will allow you to accumulate more shares of the stock without investing more of your own money.
Boeing is just one market-beating stock pick Patalon has given readers over the years. Since 2011, he's recommended an astounding 217 double- and triple-digit peak-gain winners to subscribers of his Private Briefing investing research service.
To get more stock picks and research delivered straight to your inbox for just pennies a day, subscribe to Private Briefing - learn how right here.