The Weakness of Boeing Stock Has Created a Buying Opportunity

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I believe that the decline of Boeing (NYSE:BA) stock in recent weeks has been caused by a “sell-the-news” mentality towards the novel-coronavirus vaccines, uncertainty  about the shots and their impact on flying, and worries about the company’s 787 plane.  These worries, however, are overdone, creating an excellent buying opportunity in Boeing stock for longer-term investors.

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After rallying over 50% in November on hopes that vaccines would reinvigorate demand for flying and the FAA’s re-approval of Boeing’s 737 MAX plane, Boeing stock has fallen 12% in  the last month to $205 as of the afternoon of Jan. 4.  Although the stock is well above its 52-week low of $89, in the wake of the recent pullback, it’s still trading for just 7.67 times the company’s 2018 operating cash flow. That was the year before Boeing was beset with problems stemming from both the coronavirus and the MAX’s issues.

Selling the News and Vaccine Worries

I think the recent decline of Boeing stock began due to a “sell the news” mentality  related to the coronavirus vaccine. In other words, the shares rose starting in early November in anticipation of the vaccines’ launch, before weakening after the shots were actually approved towards the middle of December.

Meanwhile, judging by comments I’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 vaccines’ launch.  However, as I pointed out in my last column on Boeing stock, during  the Thanksgiving holiday weekend, the “biggest crowds” 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 it’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 vaccines’ launch to greatly accelerate in the near-term, for three reasons.

First, as the rollout proceeds,  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 season  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, Boeing’s shares were sinking 5%. On that day, research firm Bernstein cut its rating on the shares to “underperform” from “market perform,” partly due to recent problems with the airplane maker’s 787 planes.  Specifically the firm contended that “Recently, the 787 has come under more pressure, which we do not believe the market fully appreciates.”

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 “during comprehensive maintenance checks that are required as the jets age,” 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. 

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’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 at @larryramer.