Ever since the 737 Max crisis broke out, I have been an outspoken bear on shares of Boeing (NYSE:BA) for a rather unique reason. Long story short, I’ve called Boeing the Facebook (NASDAQ:FB) of 2019, since Boeing in 2019 put profits ahead of customer safety, much like Facebook did in 2018. The media, public, and regulators — all of whom are quick to criticize huge companies which make a lot of money — have latched onto this narrative. As they have, the backlash against the company has been severe.
Eventually, this backlash will pass. But, it didn’t pass for FB stock until the negative headlines cleared and growth clarity emerged from the ashes. That hasn’t happened yet for Boeing. Instead, the news flow remains sharply negative for this company. As such, BA stock has continued to drift lower.
It will continue to do so until the negative news flow stops, and growth clarity emerges from the ashes.
That likely won’t happen anytime soon, especially with global trade conflicts escalating. Meanwhile, BA stock still isn’t that cheap, considering all the risks present in the growth narrative.
As such, now doesn’t seem like the best time to buy the dip in BA stock. Things should continue to get worse before they get better.
The News Flow Remains Negative
The biggest thing here is that the headlines related to Boeing stock remain sharply negative. Specifically, over the past two weeks alone, the headlines here include:
- Azerbaijan airline AZAL cancelled a $1 billion contract with Boeing, which included the purchase of 10 of its 737 Max planes.
- Malaysia Airlines may reportedly delay its next order of 737 Max planes.
- The U.S. Federal Aviation Administration said that some of Boeing’s grounded 737 Max planes may contain faulty parts that require replacement.
- United Airlines (NYSE:UAL) CEO said in an interview with CNBC said that he’s not sure all travelers will be ready to fly on a 737 Max plane anytime soon, even after a fix.
- The SEC has launched an investigation into the matter.
In other words, the current backdrop for Boeing stock is one defined by order cancellations and delays, a lack of customer confidence, and more regulatory investigations. That’s an ugly backdrop.
To make matters worse, global trade tensions are rapidly escalating. As a global air, space, and defense giant, Boeing has broad exposure to global trade. The more intense these trade conflicts become, the more uncertainty is injected into the Boeing growth narrative. Protectionist fears have already caused airline stocks to cut expectations — the International Air Transport Association says the Industry revised expected profits from a December forecast of $35.5 billion to $28 billion.
Overall, the backdrop here just isn’t very good. So long as that backdrop remains depressed, BA stock will have a tough time bouncing back.
Boeing Stock Still Isn’t Cheap
The other important thing to mention here is that, despite all the risks, Boeing stock still isn’t all that cheap.
Boeing stock today trades at 21-times forward earnings. That’s above the market average 16-times forward earnings multiple. It’s also above the stock’s five year average 19-times forward earnings multiple. Meanwhile, the yield on BA stock is around 2.2%. That, too, is below the stock’s five year average yield of 2.3%.
Thus, despite all the risks facing Boeing today, Boeing stock still trades at a premium to both the market and its historical norm. That’s pretty wild. Broadly, it means that if today’s risks persist for the foreseeable future, Boeing stock has further to fall.
Bottom Line on BA Stock
Boeing stock continues to struggle in 2019 as its news flow remains sharply negative. So long as the narrative here is defined by order cancellations, order delays, regulatory scrutiny and flyer confidence issues, Boeing stock will have a tough time rebounding.
I don’t see those issues clearing up any time soon. As such, BA stock will likely remain weaker for longer. Eventually, the rebound will happen — but not today.
As of this writing, Luke Lango was long FB.
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