Another day, another problem for the Boeing 787 Dreamliner.
On Sunday, a San Francisco-bound Japanese Airlines Dreamliner made an emergency landing in Honolulu on one engine due to low oil pressure. Last Friday, hairline cracks were found in 40 Dreamliners. The planes were also plagued with battery problems last year.
Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, says Boeing has one more problem: its stock chart.
Over the last several months, Ross sees the stock forming an “island reversal” pattern, a generally bearish pattern that is formed when the stock first gaps higher (it’s low on one day are higher than the previous day’s high), trades for a period in a range, and then gaps lower (its high one day are lower than the previous day’s low).
Not only did Boeing’s stock trade in an “island” from October 2013 to early 2014, but it also is trading below its 50-day moving average and above its 150-day moving average. There may be trouble ahead, according to Ross.
“That 150 is your key support,” says Ross.” The 50-day up above is your critical resistance. I think that island reversal is still in effect, meaning the chart is in a bearish formation. And, given that 90% run in the stock from last March to this January, I think we could be vulnerable to further weakness in Boeing shares.”
John Stephenson, portfolio manager at First Asset Investment Management, disagrees with Ross’s negative outlook.
“This thing is about to take off,” says Stephenson. “If you look at all cyclical stocks, they’ve been trading off lately and that’s because of a flight to safety – worries over emerging markets. But, Boeing is actually cheap relative to its historical multiples.”
Boeing’s stock currently trades at about 17.2 this year’s estimated earnings but Stephenson also believes the company’s pipeline is a reason he is bullish on the aircraft maker.
“It’s got almost eight years-worth of backlog,” says Stephenson. “That’s going to fuel orders. And, it’s got almost $6 billion in cash and that’s going to support the stock.”
“You’ve got to buy it for the backlog,” says Stephenson. “You’ve got to buy it for the valuation. You’ve got to buy it for the uptick in the aerospace cycle. Those are the reasons you’ve got to own it and you’ve got to own it now. “
To see more of the discussion on Boeing with Ross on the technicals and Stephenson on the fundamentals, watch the video above.
- Boeing 787 Dreamliner