Post-Crash Scrutiny Makes Boeing Stock One To Avoid … For Now
Shares of Boeing (NYSE:BA) have had a rough past two months. Following two fatal crashes involving the Boeing 737 MAX aircraft line, the company has been under intense media and regulatory scrutiny for its design, engineering, and safety measures. Specifically, the narrative has been broadly spun that the company put profits ahead of flyer safety. BA stock has dropped sharply as a result of this narrative spooking investors.
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As of this writing, BA stock is now in bear market territory, or more than 20% off its early March highs.
To be sure, Boeing is one of the greatest and most powerful companies in the world, long the most impressive innovator in the aerospace industry. Dips in this stock are historically always buying opportunities. This one should be no different. The core fundamentals here remain healthy. Safety issues surrounding the 737 Max plane and the company’s design and safety practices will pass. When they do, this stock will roar higher, and continue on a longer-term uptrend.
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But, in the financial markets, timing is everything. Right now, the timing isn’t right to buy Boeing stock. The news flow on this company remains sharply negative. The National Transportation Safety Board is busy with its probe. Media outlets remain unforgiving in their analysis of the company’s practices. Analyst sentiment is deteriorating. Investor sentiment remains depressed.
Broadly, this “Boeing emphasized profits over safety” narrative is still alive and well. So long as that’s the case, BA stock will struggle to stage a meaningful comeback.
Things will get better for Boeing stock. Eventually. But not now. In fact, things will get worse before they get better, meaning that buying the dip here is a waiting game.
Boeing Stock Will Be Fine Long Term
In the big picture, Boeing stock will be just fine long term. The core long-term fundamentals remain healthy. Today’s headwinds are ephemeral, and will pass. When they do, Boeing stock will recover from this sell-off. After that recovery, healthy growth fundamentals will keep BA stock on a longer-term uptrend.
There are two big components to that bull thesis. First, the core long-term fundamentals remain healthy. Second, today’s plane crash headwinds will eventually pass.
With respect to the long-term growth fundamentals remaining healthy, two plane crashes won’t kill this company’s core fundamentals. Boeing planes do thousands of trips a year, so two crashes out of thousands of flights means this is an anomaly, not the norm. Boeing will fix this anomaly, and return its fleet to being the best-in-class in the aerospace industry, which it has been for a long, long time. Further, as it really only has one competitor in this space, Airbus, the “Boeing will lose market share” risk is broadly overstated.
Meanwhile, today’s headwinds will inevitably pass, and won’t inflict much long-lasting damage. Just consider what happened to Facebook (NASDAQ:FB) in 2018. That company, too, prioritized profits over personal user security, and in so doing, compromised the integrity of its platform and the data of its users. But, Facebook has done everything possible to address those issues, is now committed to growing profits responsibly, and the stock has staged a huge comeback. Boeing will make a similar pivot, meaning that BA stock is due for a similar big turnaround rally soon.
Overall, then, BA stock will be just fine for those who are patient.
Near-Term Issues Will Continue to Weigh on BA Stock
Although BA stock will be fine long term, things will get worse before they get better.
Why? Just look at Facebook in 2018. So long as the news flow related to Facebook remained negative, FB stock remained weak. The same will be true for Boeing. So long as the news flow related to Boeing remains negative, BA stock will remain weak, too.
Right now, the headlines remain sharply negative. You have continued concerns surrounding exactly how the two planes crashed, rumored delayed product launches at the company, and ugly lawsuits which continue to hammer in this narrative that Boeing emphasized profits over safety. Further, 737 Max planes remain grounded, and multiple airlines are now demanding compensation for these groundings. New plane order flow has come screeching to a halt, and historically big Boeing buyers are now reportedly looking into switching to Airbus.
All in all, then, the news flow here remains pretty ugly. In order for BA stock to turnaround, you need that news flow to turnaround first.
Until that happens, Boeing stock will remain weaker for longer.
Bottom Line on BA Stock
Boeing stock will be fine long term. But, things will get worse before they get better. Before buying the dip in BA stock, investors should take cues from the public news flow. Until that news flow starts to consistently and meaningfully improve, BA stock won’t rebound.
As of this writing, Luke Lango was long FB.
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