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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...