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Boeing Stock Is Recovering, But It’s Not a Buy Yet

Tezcan Gecgil
·5 min read

Investors in Boeing (NYSE:BA) stock have not had a good year in 2020. Year-to-date, BA stock is down about 32%. However, Boeing shares have recovered over 115% since the lows hit in early spring. A large part of these gains has come since early November and BA stock is up about 47% in the past six weeks.

boeing stock
boeing stock

Source: Marco Menezes / Shutterstock.com

Boeing is our largest exporter and a top global innovator among aerospace and defense companies. With a global reach that extends to almost 150 countries, it is one of the most important companies in its sector. Boeing also holds over 15,000patents and has 11 research and development (R&D) centers worldwide. Therefore, both Boeing and its share price get significant attention.

Now investors wonder what to expect from Boeing stock in 2021. If you are not yet a shareholder, you may want to wait to buy into BA stock until the release of the next earnings report, expected in late January. Alternatively, you may regard any potential decline toward the $210 level as a good opportunity to invest for the long term.

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Here’s why.

Trouble In The Sky

It’s no surprise that share prices of airlines and the rest of the travel sector have taken a big hit within the last year. Due to travel restrictions, especially internationally, but also stateside, their revenues are down considerably. Recent metrics show that in early December, the number of global flights was down more than 46% from the previous year.

Similarly, based on the recent checkpoint travel numbers released by the U.S. Transportation and Security Administration (TSA), on Dec. 15, 2020, 552,024 passengers went through the TSA system. But a year ago on the same weekday, that number had been 2,009,112.

While the number of people who are flying is up substantially since spring (87,534 on April 14), we are still far off from 2019 levels.

In fact, the Dow Jones US Airlines Index is also down about 30% year-to-date. Many commercial airlines that InvestorPlace.com readers follow regularly are having a difficult year as well. For example, American Airlines (NASDAQ:AAL), Delta Air Lines (NYSE:DAL), United Airlines (NASDAQ:UAL) are all down 42%, 30%, and 48%%, respectively.

It is also important to remember that Boeing’s troubles began earlier than 2020. In 2019, Boeing 737 Max planes were gradually grounded worldwide as a result of two crashes that killed 346 people, first in Indonesia in 2018 and then in Ethiopia in March 2019.

Nevertheless, last month, the U.S. Federal Aviation Administration cleared the Max 737 to fly again. American Airlines will be the first domestic airline to return the aircraft to commercial service at the end of December, and United Airlines plans to relaunch flights in the first quarter of 2021. However, this positive news is likely to have been priced into the recent gains in BA shares.

BA Stock Earnings

Boeing reported Q3 results in late October, reflecting lower commercial deliveries and services volume primarily due to Covid-19. Revenue was $14.1 billion, down by 29% from a year ago. Non-GAAP loss per share was $1.39, compared to the earnings per share of $1.45 a year ago.

CEO Dave Calhoun said the company plans to increase manufacturing in 2021.

“We still expect to produce the 737 at very low rates for the remainder of 2020 and gradually increase the rate to 31 by the beginning of 2022… We will continue to assess the delivery profile for 2021 as it will help inform if we need to adjust our 737 production rate ramp-up. We will continue to keep our supply chain apprised of our plan. At the end of third quarter, we have 3,400 aircraft in our 737 backlog.”

BA stock’s forward price-earnings and price-sales ratios are 97.09 and 2.14, respectively. Since the release of earnings, BA stock is up significantly, about 50%. The price momentum also corresponded with the positive Covid-19 vaccine news from Pfizer (NYSE:PFE), BioNTech (NASDAQ:BNTX) and Moderna (NASDAQ:MRNA).

Although many consumers and investors are understandably hopeful that there is light at the end of the tunnel, I believe the recent run-up in BA stock price has been overextended.

The Bottom Line

Given how far Boeing stock has increased especially since late October, short-term profit-taking is likely to be around the corner. So, if you are not yet a shareholder, you may want to look for a long-term investing opportunity in BA stock around $210 or even below.

Boeing serves both commercial and government aviation, both in the U.S. and globally. The company will recover from its current woes to reach new highs. However, that will take at least several quarters.

You may also consider buying an ETF that has Boeing stock as a holding. Examples include the SPDR Dow Jones Industrial Average ETF Trust (NYSEARCA:DIA), the iShares U.S. Aerospace & Defense ETF (CBOE:ITA), the Invesco Aerospace & Defense ETF (NYSEARCA:PPA), the Industrial Select Sector SPDR Fund (NYSEARCA:XLI), or the First Trust Mega Cap Alphadex Fund (NASDAQ:FMK).

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation and publishes educational content on investing.

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