Boeing (NYSE:BA) remains an emotional investment. The fall from grace was massive and the wounds from it are deep. Case in point is how BA stock rallied Tuesday to $176 per share … and then immediately fell $16. Boring stocks don’t do this, but therein lies the opportunity.
With a little bit of homework, investors can leverage the emotional responses into opportunities. The thesis is that this stock is back to its old behavior. It moves fast, but investors end up buying the dips anyway.
The worst is behind it without a new shoe to drop.
The fundamentals for Boeing have not changed much in the last decade. It is still one of only two competitors who provide commercial airplanes for the whole world. What has changed is the amount of business that they have in their backlogs. The sales roster was a decade long just two years ago. But since 2019, events have taken a big toll on its order book. Some of the pain came through boeing’s own fault with the 737 Max model debacle. The rest was the pandemic’s fault this year. Nevertheless the setback causes are over and the reparations are ongoing.
BA Stock Seems Unstable from Short Term News
Consensus from the experts in the field is that the 737 Max will fly again this year. When this happens it will free up a lot of inventory so to turn it into cash.
Moreover, the vaccine companies are making great progress towards their goal. And therapeutics for treating Covid-19 patients are also improving. The president himself benefited from experimental treatments from Regeneron (NASDAQ:REGN) to help him with his bout with the virus.
On the flip side, it is important to realize that its pool of customers are struggling, and some are on the brink. Airlines are hemorrhaging from their daily operations and the low sales. In fact, the reason why Boeing fell yesterday was in sympathy to the news that there may not be another stimulus package before the election.
Once the news shockwaves abate, BA stock will go back to trading how it did for years. The bulls used to buy every dip, that’s how it hit $445 per share. Now it is miles off those levels, but it is building momentum. It is establishing a consistent higher-low trend. Unless the global macroeconomic picture is prolonged doom and gloom, Boeing will recover and will make a better buy than a short.
The Worst Is Over, Now the Healing Happens
They say that they don’t ring bells on Wall Street at the bottom. But the BA stock bell was rung loudly when President Donald Trump said mid-March on national TV that he supported helping Boeing. Back then, its stock was crashing near $90 per share. That was the green flag to buy it. Since then, the bears have tried to send it back down there in May and failed.
This effort will also fail.
The bulls have established a clear band of support above $140 per share and another $20 lower. Investors can rely on these to hold with our current global circumstances. It will take a significant fundamental change in the overall macroeconomic thesis for that to happen.
The simple strategy is to buy the shares and forget about them for a few years.
There Is Light at the End of the Tunnel
Judging by the TSA daily screening report, there is a recovery afoot — but it needs to get here quick. Social distancing is still crippling our movements. Not many are flying because they want to, most do it because they need to. Medical experts expect the vaccine soon, so that should help. This is important to Boeing, because it benefits if the airlines are busier.
The U.S. election process is yet another potential wrench in the success formula. After all said and done and regardless of who wins the contest, Wall Street will move past the current uncertainties.
For now, volatility is here to stay at least through December. This is not a bad thing, it just means that we will have more days like Tuesday. Traders can gain the edge in the short term by studying the charts. Long-term investors don’t really care because their goal is further out in time.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.