Boeing's pullback screams 'buy'

This blue-chip manufacturer is a great stock for the long haul and a perfect candidate to buy on its current dip. Here's why.

By StreetAuthority Feb 3, 2014 5:18PM
A Boeing 787 Dreamliner flies during a preparation routine for the Paris Air show at Le Bourget on June 14, 2013 (© ERIC PIERMONT/AFP/Getty Images)By Karen Canella                                                               

This $103 billion aircraft manufacturer is about to experience some turbulence.

It might just be a rogue cloud or a bigger storm brewing, but there's no telling how investors will react to the latest string of disconcerting news for this company. A couple of items might even be enough to overshadow the fact that Boeing just beat analysts' estimates for the fifth consecutive quarter.

Yes, it could get that bumpy for Boeing (BA). BA was pummeled last week after the company announced lower-than-expected forecasts for 2014 -- but no signals of a continuation of record-breaking jet orders.

You can't say the same for Boeing's archrival, France-based Airbus (AIR), which is making headway in Southeast Asia. Vietnamese carrier VietJetAir is about to order 62 Airbus aircraft for a reported $9 billion, with more orders to come.

Now is a great time to invest in Vietnam, considering it's expected to become the third-fastest-growing market in the world. Boeing has estimated of the 33,000 commercial aircraft it expects will be required in the next two decades, the U.S. will account for just 20 percent, with the bulk coming from emerging markets like Vietnam.

About Boeing's aircraft: Lately, its Dreamliner 787 has gotten most of the Federal Aviation Administration's attention, but this week, its 767 took center stage, due to a problem with the elevators.

A fix will cost airlines $510 per plane in labor costs (not including the inspection fees and downtime), but this isn't the 767's first go-round with the FAA on this same issue. An FAA directive due to take effect March 3 makes the fix mandatory within six years for U.S. and foreign carriers could have an impact on future orders.

Last month, Boeing reported that its factory in Everett, Wash., had produced its 10th Dreamliner within a month's time -- the highest rate ever achieved by Boeing. While 16 customers have already taken custody of 115 Dreamliners, there's still a whole lot of work to be done.

Business is booming, but Boeing really has its work cut out for it. Next up: Build a dozen 787s a month by mid-2016 and 14 a month by the end of the decade to fill 1,531 orders from 60 additional customers.

Don't get me wrong, backlog is all good, and relatively speaking Boeing's is spectacular. But it remains to be seen if the company can keep pace with its 16 percent increase in backlog in 2013 and deliver 5,080 planes currently on order in a timely fashion.

The 737 accounts for 70 percent of that total. If Boeing stopped taking orders for the 737 today and continued producing them at the same rate, it would take until 2021 to exhaust its backlog. The shipping of 648 aircraft in 2013 -- which beat Airbus' total for the second consecutive year -- makes for good PR, but it doesn't move the needle for investors or impatient customers. The good news is that Boeing plans to boost production by 24 percent.

All that said, Boeing is as stable as an airline/defense contractor can be in this day and age. Its stock rose 81 percent in 2013, well ahead of the S&P 500's 26 percent gain, as it agreed to $95 billion in deals with Middle Eastern Airlines and struck a deal with a union in Washington state to keep building the 777x in Seattle.

That success prompted Boeing's board last month to raise the dividend by 50 percent, to $2.92 a share (good for a 2.1 percent yield), and OK a $10 billion share buyback program, which is equal to nearly 10 percent of outstanding shares.

Time will tell how much weight investors place on stellar fourth-quarter earnings versus a bland forecast for 2014 and unsettling headlines. I expect Boeing's order backlog and industry dominance will keep its stock on the rise for years to come.

Risks to Consider: There could be some short-term fallout from the sheer amount of negative forward-looking news this week. Additional safety and regulatory issues could pop up at any time.

Action to Take --> Boeing is a class act with leaders who know how to keep an airline ascending. After last year's gains, BA is suffering a pullback, but one that could well be short-lived. Currently trading about 10% shy of its 52-week high of $144, BA looks like a buy for the long term anywhere under $130.

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