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Should You Buy Boeing Stock at Current Levels?

When it comes to Boeing (NYSE:BA) stock, there has definitely been quite a lot of, well, turbulence lately. Just look at this week. On Monday, Boeing stock jumped 3%, adding fuel to a rally of the Dow Jones Industrial Average. But Tuesday was much different. The BA stock price dropped nearly 5%. And yesterday, the shares dropped another 3%.

Despite its struggles this week, Boeing stock has still had a fairly solid year. For 2018, BA stock price has risen 8%, which is better than a variety of other major industrial operators like 3M (NYSE:MMM), United Technologies (NYSE:UTX) and Honeywell (NYSE:HON).

OK then, so what now? Is the bull case on Boeing stock still intact or should investors become cautious about BA stock?

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It’s true that Boeing has some key advantages. The company is one of two major commercial aircraft manufacturers  (Airbus (OTC:EADSY) is the other). China is making some headway in the sector, but it will still take awhile for its domestic operators to be a force in the industry. And airlines want to buy planes from   manufacturers that have sterling records.

At the same time, Boeing stock is also boosted by the company’s defense business. The company manufactures fighter jets, such as F-15s and F-18s, but it also has other initiatives in growth areas like satellites, launch systems, security and advanced information technologies.

The Issues Facing Boeing Stock

Despite the company’s advantages, Boeing stock may still have some trouble in the near-term. One of its headwinds is the recent crash of Lion Air’s Boeing 737 MAX jet, which dived into the Java Sea after takeoff, killing 189 people.

An intensive investigation has been launched. But already, there are disagreements between Boeing and Lion Air. Was the crash due to lax maintenance? Or did Boeing’s manuals fail to adequately explain how to use the automatic anti-stall system?

The answer is far from clear. But according to The Wall Street Journal, it appears that there was a “debate” within Boeing on how to explain the automatic anti-install system in the manual. Then again, the FAA did approve the manual.

Lion co-founder Rusdi Kirana has indicated that he may cancel all pending orders with Boeing! If Kirana takes that step, BA would be meaningfully affected, since Lion Air is a large customer and has pending orders of 251 jets from Boeing.

Kirana may just be venting. If Lion cancels orders, it would lose its deposits. But it is far from clear how things will play out from here, and the uncertainty could create an overhang on Boeing stock.

However,  the company is facing other issues, the most important of which may be trade with China. Even though the U.S. and China will not impose new tariffs for 90 days, it will probably be tough for the two sides to reach an agreement. The arrest of Huawei Technologies Co.’s CFO, Meng Wanzhou (who is also the daughter of the company’s founder), may complicate the talks.

Boeing relies heavily on deals with China. In the third quarter, about 31% of the total purchases of Boeing’s commercial planes were made by China, and the Asian country will also probably be a key growth catalyst for BA over the long-term.

The Bottom Line on BA Stock

Trading with a forward price-earnings multiple of 18, Boeing stock has a reasonable valuation. Since BA has two solid businesses with powerful barriers to entry and strong growth prospects, BA stock deserves a respectable valuation.

But on the other hand, in the short-term, it could be tough for Boeing stock to get traction. The crash investigation will certainly take time, and the U.S.-China situation will probably be volatile. So for now, it’s probably best to hold off on buying Boeing stock.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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