As a component of the recently beleaguered Dow Jones Industrial Average, investors are understandably hesitant about Boeing (NYSE:BA). During the midweek massacre, the Boeing stock price shed nearly 4%. That’s a sizable chunk for a historically reliable blue-chip company.
Of course, BA stock lost its previously stellar reputation. After two high-profile fatal accidents involving the Boeing 737 Max 8 jetliner, the airplane manufacturer had to come clean. They admitted defects within their anti-stalling system known as Maneuvering Characteristics Augmentation System (MCAS).
Eventually, the investigations into the MCAS software revealed horrendous oversight issues with the Federal Aviation Administration. As a result, government bodies throughout the world grounded the Max 8 until Boeing delivered a permanent resolution. Naturally, the Boeing stock price has encountered upside resistance throughout this year.
Yet BA stock may also benefit in the longer run from the “forgotten money” dynamic. Imagine putting loose change in a jar. Over time, those savings can amount to serious dollars. And in a higher-level sense, that’s what we have with BA.
Recently, Commerce Secretary Wilbur Ross said the U.S. economy will get a kickstart once governments lift the Max ban. By Ross’ estimation, the grounding eliminated about 0.4% from the second-quarter GDP.
And before you say this is political pandering, the Commerce Secretary does have a point. We’re in the sixth month of the ban. Moreover, several airliners have eliminated flights involving the Max 8, stymieing travel during high-demand seasons. A return to flight will certainly drive up the Boeing stock price.
Additionally, the plane manufacturer enjoys organic headwinds that could end up at least sustaining BA stock during this difficult time.
Perpetually Relevant Boeing Stock a Safer Bet Than Others
Allow me to bring one clarifying caveat to the table: I’m not suggesting that BA stock is an easy buy. With macro-headwinds such as the U.S.-China trade war and the yield-curve inversion, even a stalwart like Boeing will face volatility.
At the same time, the company has a very relevant business, with practically only one other competitor, Airbus (OTCMKTS:EADSY). As I argued in late June of this year, Boeing and Airbus are locked into a duopoly. Sure, other players are trying to break into this arena. However, it’s going to take substantial time to break the two giants’ deeply embedded foothold.
It’s no surprise, then, that revenue for Boeing stock is extremely consistent, quarter in and quarter out. In the most recent earnings report, management reported top-line sales of $15.75 billion. That was a 35% loss from the second-quarter 2018 results. And the markets hadn’t witnessed a sales decline like that since the Great Recession.
Otherwise, since Q1 2013, BA quarterly revenue averages over $23 billion. Once the forgotten money of the Max 8 returns to the runway, Boeing stock should resume its normal course; that is, a somewhat boring name bringing in consistently reliable sales and earnings.
Another point to consider is that Airbus really can’t impact BA stock. Let’s use an extreme example for illustration purposes. One of the reasons I hated Papa John’s (NASDAQ:PZZA) after their racial slur incident was transmutability: consumers can easily switch their favorite pizza brand.
But an airplane supplier? Such orders take years to fulfill. From that standpoint alone, airliners are better off waiting out the Max 8 rather than disrupting their relationship with Boeing. Furthermore, Airbus knows this situation is temporary. They don’t want to load up their inventory with expensive planes they can’t move.
Diverse Business May Lift BA Stock
For most companies, weakening economic metrics represent only one thing: bad news. But for the Boeing stock price, there’s a silver lining.
Underlining the economic conflict in the U.S.-China trade war is a militaristic one. I’m not suggesting that the trade war will turn into a real war. Rather, we have many geopolitical adversaries that are seeking to advantage our tariffs tit-for-tat.
Most notably, I’m talking about North Korea. The hermit nation has few allies, but China is one of them. While the trade war rages, North Korea hasn’t been shy about flexing their muscle. Apparently, bullies don’t respect anything but violence. Thus, the U.S. has an incentive to ramp up their war machinery to keep such belligerent sentiment in check. Logically, this helps BA stock longer term due to Boeing’s defense arm.
And while we’re talking about adversaries, we should also mention Russia. Lately, the Russians have been ramping up Cold War tensions. Worryingly, they’ve also been encroaching closer toward U.S. territory. This is another incentive for our government to fortify our military capabilities, which ultimately supports Boeing stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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