I believe that the decline of Boeing (NYSE:BA) stock in recent weeks has been caused by a â€œsell-the-newsâ€ mentality towards the novel-coronavirus vaccines, uncertaintyÂ about the shots and their impact on flying, and worries about the companyâ€™s 787 plane.Â These worries, however, are overdone, creating an excellent buying opportunity in Boeing stock for longer-term investors.
After rallying over 50% in November on hopes that vaccines would reinvigorate demand for flying and the FAAâ€™s re-approval of Boeingâ€™s 737 MAX plane, Boeing stock has fallen 12% inÂ the last month to $205 as of the afternoon of Jan. 4.Â Although the stock is well above its 52-week low of $89, in the wake of the recent pullback, itâ€™s still trading for just 7.67 times the companyâ€™s 2018 operating cash flow. That was the year before Boeing was beset with problems stemming from both the coronavirus and the MAXâ€™s issues.
Selling the News and Vaccine Worries
I think the recent decline of Boeing stock began due to a â€œsell the newsâ€ mentalityÂ related to the coronavirus vaccine. In other words, the shares rose starting in early November in anticipation of the vaccinesâ€™ launch, before weakening after the shots were actually approved towards the middle of December.
Meanwhile, judging by comments Iâ€™ve seen from experts and pundits, some doubts remain as to whether and how quickly demand for flying will return in the wake of the vaccinesâ€™ launch.Â However, as I pointed out in my last column on Boeing stock, duringÂ the Thanksgiving holiday weekend, the â€œbiggest crowdsâ€ since the pandemic reached the U.S. flew on commercial planes in America. That data point indicates that, even before any vaccines were administered, fear of flying had greatly declined in the country. Therefore, I think itâ€™s clear that most Americans will be eager to fly again once they get vaccines.
Staying with the vaccines, the slow initial rollout of the shots has also, I believe, weighed on Boeing stock. But I expect the vaccinesâ€™ launch to greatly accelerate in the near-term, for three reasons.
First, as the rollout proceeds,Â the entities to whom the shots are sent will get their employees better trained on how to receive, store, ad administer them. Secondly, up to this point, the rollout has largely occurred during the holiday season, when employees in the U.S. are famous for taking many days off and slowing down when they are at work. Now that the holiday seasonÂ has passed, healthcare employees and others involved in the launch are likely to work much more quickly. Finally, negative publicity about governments and facilities that are rolling out the vaccines very slowly should encourage those entities to move much more quickly going forward.
Worries About the 787 Plane Are Overdone
On the afternoon of Jan. 4, Boeingâ€™s shares were sinking 5%. On that day, research firm Bernstein cut its rating on the shares to â€œunderperformâ€ from â€œmarket perform,â€ partly due to recent problems with the airplane makerâ€™s 787 planes.Â Specifically the firm contended that â€œRecently, the 787 has come under more pressure, which we do not believe the market fully appreciates.â€
Bernstein is referring to a manufacturing issue that the FAA discovered with the 787. But since the agency does not consider the problem a safety threat in the near-term and it can be remedied â€œduring comprehensive maintenance checks that are required as the jets age,â€ according to Fox Business, I do not expect orders or sales of the jets to drop meaningfully for an extended period of time.
The Bottom Line on Boeing Stock
Worries about the coronavirus vaccine, flying demand, and the 787 are overdone, making the shares attractive after their recent pullback.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.Â
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israelâ€™s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Roku, solar stocks, and Snap. You can reach him on StockTwits atÂ @larryramer.