Just Stop It: Boeing Will Be Fine
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It's with great interest that I've watched the media sharks circle aircraft maker Boeing (NYSE: BA) over the last week. A series of problems, some smaller, some larger, have popped up with the company's 787 Dreamliner aircraft. But that doesn't mean the firm is expected to go away anytime soon. In fact, I think it means opportunity.
Yes, the firm's stock has had a rough couple of days. But that's no reason to give up on buying it. If you have it, you should hold it. If you don't have it, you should think about picking some up. It's doubtful there's a better high-profile American manufacturing stock out there. I'm even backing my words with deeds. Already a Boeing stockholder, I bought several thousands of dollars more last week.
Look, yes, the issues with the Dreamliner are getting a lot of press. There's no doubt about that. And the Dreamliner is going to get a thorough review by the Federal Aviation Administration. None of this should shake your confidence, however. Most of this is just your standard media frenzy masking as public concern.
Remember, this is still a firm with a strong, sexy new product. Yes, the product had some bad press last week but no one has been injured. In all cases, the problem was contained, detected or dealt with before it could get to the point of endangering any passengers or crew. That's why the media has had to work so hard to blow the scandal up. Heck, in one case I even saw a story about an issue where a warning sensor went off too soon! What kind of trouble is it where something that is being too protective is considered a danger?
The fact remains, Boeing is showing all the signs of being a strong, growing company. Production for the Dreamliner, made near my Charleston, SC home, is so strong that the firm is considering putting on another shift to increase deliveries. Don't forget that Boeing makes other planes, as well. Production of the 777 has been doubled and the firm now expects to deliver 100 of the 777 aircraft per year.
For heaven's sake, the firm even made a larger offer to its engineering union this month. Does that SOUND like a firm in trouble? No, it sounds more like a strong firm that is taking decisive action to boost production and make its employees happy in anticipation of strong demand for its products. And when those products cost in the hundreds of millions of dollars and there's a back order list that years long? They, and you, shouldn't be worried.
Boeing's stock still has good fundamentals. The firm's orders are good; its price-to-earnings ratio (as of 1/14/13 before the open) of 13.26 is good. At $75.16 it's trading near its 52-week high of $78.02 even after the recent bad publicity. It's a strong stock for a strong company. It's well-positioned for the future and pays a good dividend (2.58% yield at the moment) and that dividend was raised just a few weeks ago. There's simply no structural sign of a firm undergoing any form of existential threat. The only real threat to Boeing is if the firm handles the media poorly over the next few weeks. But senior management's embrace of the FAA review shows them doing the right things so far.
There are other stock choices in aerospace, of course. Airbus is Boeing's most popular competitor. Sadly, it's a private firm so you can't buy it. But there are two growing but lesser known entrants.
Embraer (NYSE: ERJ) is a Brazilian firm that does everything Boeing does. It's not a bad buy, but not as good as Boeing. The stock is up lately but it's traded higher in the last year, getting as high as $35.55 when it's at an even $28.00 now. More worrying is the decline in its dividend rate, the firm's board has cut it from 18 cents to 12 cents to 8 cents, all within the last six months. Take a wait and see attitude.
If you really want to commit to aerospace, you can always hit the big boys at Lockheed Martin (NYSE: LMT). While the firm doesn't produce any commercial aircraft any more they still do some of the best aerospace work in the world. In essence, every other type of aircraft/aerospace related thing that can be made is there's to make. The firm's stock has gained a lot in the last year - about 11% - and the dividend is very good. However, be cautious. As I've pointed out in the past LMT is a stock very vulnerable to cuts in U.S. defense spending.
Boeing stock will take a hit for the next several weeks as the news media scares people. That's just what's going to happen. Some people are going to dump their stake in Boeing and maybe lose some money. Don't be one of those people. This is a classic case where the media hype is ahead of reality. Take the time to slow down and see if there's opportunity here instead of just fear. Don't be stampeded into doing something silly.
Remember who the players are here. Boeing makes planes. Planes with a long record of safety. The media makes news. They have an interest in creating fear because fear means viewers and viewers means income. Don't let the one get associated in your mind with the others. Take the media reports with a grain of salt, and take Boeing's dividends and growth to the bank. I know I'll be doing so.
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Nate Wooley holds shares of Boeing. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!