Now the experts are brave talking Boeing (NYSE:BA) stock up. Yesterday RBC rated it with an “outperform” rating and a $164 price target. Meanwhile, when the true opportunity presented itself during the novel coronavirus crash they were all silent about it. Below $90, BA stock was a blind and emphatic buy. Most of Wall Street missed it. Chasing headlines is rarely a smart thing to do. With that in mind, here are some key things you need to know about Boeing stock moving forward.
I did my share of looking at charts during the March Covid-19 crash and wrote about my conclusion then. Boeing stock rallied almost 100% thereafter, so the gift was indeed fantastic. Moreover, the stock took a few more whacks from silly headlines, and those dips were also opportunities to buy. The most recent was a week ago and that entry point is now 30% higher. Clearly, this stock is back to its old ways of buy-the-dip mode. But that is not the same as saying that it is out of the woods completely.
The headlines are still coming and from all angles. Boeing stock will fall on bad news from all travel-related stocks. Its clients are airlines and they are still suffering from hiccups in travel and entertainment sectors. Not to mention that the company is still under political pressure over its 737 Max model. But for now, I am a buyer of the dips and eventually this stock is headed to $220 per share maybe in 2020. I know this sounds like a pipe dream, but let’s line up a few facts to support it.
Boeing Stock Fundamentals are Still Rock Solid
On its worst day, the Boeing sales pipeline is beyond reproach. It is one of only two major jet manufacturers on the planet. They are both booked solid for years. The global quarantine did cause a lot of cancellations but that problem for them started last year. The grounding of the Max was a major disruption in the order flow. Covid-19 merely made the problem worse. My thesis is that the authorities will let the 737 Max fly again and that is a headline that will cause a leg higher in BA stock.
Fear is at an all-time high over the global business outlook but specifically for travel. The debate over the future of U.S. airlines is hot. Don’t take my word for it, you heard it from high profile and controversial statements from billionaire investor Chamath Palihapitiya, and more recently even Boeing CEO David Calhoun suggested the likelihood of a major U.S. Airline folding. Clearly Wall Street is on edge over investing in travel stocks. BA stock sits in the line of fire and suffers in sympathy. If its clients, the airlines, go out of business, Boeing is not going to be selling a lot of planes to them.
To be fair it is hard to judge the stock metrics using price-to-earnings ratios. Its top line has been hostage for two years, so I have to assume that the sales pipeline speaks better truth than actual revenue accounting. They can’t book the sale without delivery so they need the Max to be free for that. Once that headline hits, I bet the burst higher will be wild and sustainable. Shorts will be carried out on stretchers.
Chart Patterns Support a Big Rally for Boeing Stock
I am a strong believer in the technicals because charts don’t lie. This is why there is the adage that “price is truth.” In this case, the long-term weekly chart suggests a bounce to $225 per share, and the chance to over-shoot by $25.
This was an important zone of a giant burst in July 2017 and traders will be eager to trade around it once more. Also there is a big gap left open from the fast collapse on the way down this march. As far-fetched as it seems, I bet that machines will want to go through those zones sooner rather than later.
Even if investors don’t believe in technicals, the bounces off the lows confirm that the downside is limited. So owning the shares for the potential mega spike has a very favorable risk to reward ratio. There are more nuances on the chart that also support this, like the recent price range. It has been tightening into a point which usually indicates that a big move is imminent. Since they are buying the dips, then the upside breakout is the more likely scenario.
The bottom line is that the world has no choice but to stick with Boeing. And the investors also voted with confidence as they lined up to lend the company money. The company raised $25 billion so it now has the cash hoard it needs to come out of this crisis swinging. They could have sold $75 billion that day so there is ample liquidity to support operations. I would not bet against Boeing stock for long.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.