Skies look bumpy for Boeing
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Dear Mr. Berko:
Each year since 2002, I’ve been lucky. Over the years, using my special stock chart system, I’ve bought 300 shares of Boeing at a low price and always sold it at a much higher price. Because this is an unusual market, I would like your advice before I make a commitment. Do you think if I bought Boeing at today’s $54.30 price that I could scalp 8 or 9 points in the coming six to nine months? Or do you think it would be a good long-term investment if I goof and have to hold it for 12 months or longer?
S.K., Springfield, Ill.
Dear S.K.:
Boeing Co. (BA — $54.30) makes fighter jets (F-4, FA-18, F-22), the C-17 cargo carrier, E-3 AWACS, the V-22, helicopters and all sorts of weaponry, killing machines, missiles and surveillance, intelligence and delivery systems. The hundreds of billions of dollars generated by these warbirds and war systems over the years have kept Boeing’s executives in Mercedes-Benzes, silk neckties, country club dues and high cotton. It’s been good for Boeing’s shareholders, too.
Boeing also makes commercial aircraft and, after innumerable delays, expects to commence production of the inordinately expensive 787 Dreamliner in 2010. The company has firm orders for 850 of these huge hogs at a retail cost of about $190 million each. This flying colossus seats 210 to 330 people, and some models have built-in putting greens, bowling alleys, masseuses and congregational hot tubs. Meanwhile, I wonder what happened to Boeing’s 707s, 717s, 727s, 737s, 747s, 757s, 767s and 777s, each of which was heralded as the ne plus ultra of the sky.
I haven’t liked Boeing since September 2007, when the stock traded at $105 per share based upon the potential revenues and profits from its 787. At the current $54.30 price, I like BA even less. Net profit margins have fallen by 50 percent; return on equity has collapsed, while revenues and earnings have declined. In fact, BA recently declared a higher-than-expected third-quarter loss of $2.33 per share, and management changes almost every week.
BA will be profitable this year; however, analysts expected earnings of $3 per share, but BA will be fortunate to earn $1.35 a share for 2009. Thank goodness for Boeing’s jet fighters, military cargo aircraft and helicopters. Heck, can you imagine that BA’s F-22 fighter jet, which seats just one, retails for $200 million and doesn’t even have a toilet, whereas the 787 seats up to 330 and only retails for $190 million? Sheesh, no wonder BA prefers to make planes for the military rather than the airline industry.
However, if there were ever to be world peace, BA’s military revenues would collapse, so management must maintain its commercial business. But every time a bomb detonates in the Mideast, management opens a case of champagne, dispatches some mercenaries to fan the flames and sell some armament, the purchases of which are financed by JPMorgan or Citigroup. And with our dollar falling like a rock from a high Alp, the arms buyers are getting a lot more bang for the buck. Isn’t democracy wonderful?
However, Boeing seems to have a management problem. Production delays continue to plague the company, revenues are down, operating margins are falling, net profit margins have crashed, production costs are surging beyond expectations and the tight credit markets have added significant uncertainty to BA’s growth trajectory. And as some of the global airlines continue to cancel contracts for the 787 Dreamliner, profits for the coming few years look “iffy.”
Boeing will rise again, but I can’t tell you when that “again” will be. According to Barclays, Oppenheimer, McAdams, Wright and Argus, each of which has recently downgraded the stock, the probability that BA’s share price will decline over the next 12 months is greater than the probability that it will appreciate. Stay away from this equity.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, Fla. 33775 or e-mail him at mjberko@yahoo.com. © 2009 Creators.Com
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