Invest in Boeing: Three Years of Stats

Boeing currently sells for $130 a share. That is after a gap up after the company reported better than expected cash flow based on a lot of plane deliveries. Back in 2011 when we suggested that investors look at this stock as an exercise in fundamental analysis of big cap stocks poised for a run up in price. Back then Boeing was selling for $60 to $80 a share. The share price started to go up in 2013 and the stock now trades in the $130 to $140 range. Boeing pays a seventy-three cent per share dividend which at the current share price comes to a two and a forth percent yield. Earnings per share are just under six dollars. But, if you want to invest in Boeing now you will want to know the intrinsic value of the stock.

Invest in Boeing for Forward Looking Dreamliner Earnings

This brings us back to our 2011 argument for why you might want to invest in Boeing. The aerospace giant delivered the first Dreamliner to All Nippon Airways at a ceremony at the Boeing Everett Plant in the state of Washington on September 26, 2011. The delivery of the first aircraft is three years behind schedule. Half of the structure of the 787 is carbon composite materials reducing the plane’s weight and resulting in a twenty percent reduction in fuel consumption compared to jets in its class. This will allow the 787 to fly longer routes. The Boeing 787 takes advantage of a lot of new technologies including new lithium batteries that caused fires and the grounding of the entire fleet of Dreamliners for part of 2013. The plane is more comfortable than other jets with features like larger windows and storage space for carry-ons. The new jet goes for around two hundred million each depending upon design variations. Two hundred million times eight hundred orders at the time of our first article comes to roughly one hundred and sixty billion US Dollars. Today Boeing has delivered 132 of these jets and has orders for a thousand more. This means that Boeing can expect cash flow just from the Dreamliner of two hundred billion dollars in the next few years.

Other Boeing Operations

Boeing does not limit itself to making high tech airplanes. The company makes and launches satellites to orbit the earth. Visit this link to see a current Boeing Satellite launch schedule. Combined aerospace operations make Boeing the largest US exporter by dollar value. All of US agriculture runs a forty-five billion dollar trade excess. Boeing runs a trade excess of more than fifty billion each year! The company is unique in an extremely high cost of entry set of markets and as such is likely to grow and thrive over the years to come.

Invest in Boeing – Dreamliner Revisited DOC

Invest in Boeing – Dreamliner Revisited PDF

Invest in Boeing – Dreamliner Revisited PPT

More Resources

The ISM Manufacturing Index

The ISM index is a monthly product of the Institute for Supply Management. The institute was founded in 1915 and is the world’s first such organization. The focus of the ISM is supply management, the “identification, acquisition, access, positioning, and management of resources and related capabilities the organization needs or potentially needs in the attainment of its strategic objectives.” (ISM) The ISM manufacturing index is used by many as an economic indicator as the ordering of materials typically precedes the sale of manufactured products and profits. Want to make money by investing? Follow the ISM to good insights into which economic sectors are on the rise or ready to fall.

The ISM follows these aspects of supply management:

• Purchasing/procurement
• Strategic sourcing
• Logistics
• Quality
• Inventory control
• Materials management
• Warehousing
• Transportation/traffic/shipping
• Disposition/investment recovery
• Distribution
• Receiving
• Packaging
• Product/service development
• Manufacturing supervision

The Unexpected Recovery of United States Manufacturing

The reasons we are thinking that one may want to invest in manufacturing stocks are two. The ISM report indicates that US manufacturing is getting back on track after a brief lull. And, the economic boost from Federal Reserve bond purchases will drive down interest rates. Low interest rates commonly go with economic expansion as companies take advantage of low rates to make repairs, expand, increase R&D, and hire more workers. The ISM manufacturing index went up to 51.5 in the last reported month (September). Any number above 42.5 is considered an indication of expansion. Analysts had expected an improvement but not anything this good.

Who Are We Talking About?

When we suggest that you might want to invest in manufacturing stocks who do we mean? Boeing, General Electric, General Motors, United Technologies Corp, Honeywell International, and Caterpillar are just a handful of United States manufacturers. Each company has its niche and its story. General Motors, GM, has just emerged from bankruptcy. Invest in Boeing? Boeing, BA, is rolling out the new state of the art 787 Dreamliner at $200 a crack. Caterpillar, CAT, supports construction projects in the USA and across the world. United Technologies Corp, UTX, provides high tech products for building systems and aerospace. Honeywell, HON, provides diversified products and solutions to customers worldwide. And, General Electric, GE, products and services include aircraft engines, power generation, water processing, household appliances and medical imaging. If you want to invest in manufacturing stocks as the sector recovers the above stocks may well be good places to start.

Where to Invest

If you are going to invest in manufacturing stocks based on the most recent ISM report, remember that the just-released ISM index has to do with US manufacturing and not manufacturing in Japan, China, Taiwan, or Germany. For US manufacturing indices of export growth and placement of new orders were both heartening. Employment in the manufacturing sector also rose. ISM numbers elsewhere were worse. Manufacturing indices in the UK as well as China both fell in September.

More Resources

How does a prudent investor approach stock investment in a volatile market like we see today? There are a number of long standing caveats to investing. First and foremost smart investors diversify their holding and thereby limit their investment risk. Investors typically pick several market sectors and purchase a stock in each sector. Because different market sectors react differently to changes in the economy the stocks in these sectors will often balance each other out. For example when oil prices go up big oil stocks will rise as well. At the same time many industrial and transportation stocks will fall in value. When oil prices fall so will oil stocks but airlines, railroads, automakers, and steel producers will commonly prosper. One of the basics of learning how to invest is to learn how to develop and balance a stock portfolio.

Dividend stocks are often a good way to maintain income in a volatile market. Stocks like Microsoft – MSFT, Boeing – BA, and Cisco – CSCO, all provide dividends to their shareholders and are substantial companies with a vanishingly low risk of going out of business in tough economic times. As the staggering debts of the EU and the USA draw down economic growth we can expect to see slower returns in the general stock market. Dividend stocks that have been paying routinely for half a century or more are a good bet going forward. In many cases the primary return for the investor may turn out to be dividends.

With the US debt expected to remain high for years and with debt and growth so closely intertwined it is hard to see how the broad range of stocks will appreciate very rapidly in years to come. However, there still are growth stocks. Biotechnology, for example, has barely scratched the surface of possible new ways to improve health, increase food production, and prolong life. One can invest in the giants of the industry such as Roche – RHHBY(owner of Genentech) or any number of small startups with promise. However, to invest in this sector investors need to do their homework in order to understand just what these companies do, what products they are developing, the timeline of getting medications approved by the FDA, and the potential profitability of new products. This sort of stock investment in a volatile market bypasses economic concerns and goes to the heart of whether a company can develop and maintain a profitable product or not.

More Resources

With the sale of the first Boeing 787 Dreamliner there is the opportunity to invest in Boeing as it starts mass producing these $200 million jets. With over 800 already contracted for Boeing – BA – can expect a $160 billion cash flow just based upon currently completed sales. A long term investor can look at Boeing as one of the best stock investments in a declining market. The company has already made enough sales of its new jet to keep their production facilities busy for over a year and more orders are likely to come in, especially from expanding Asian markets. Dividend stocks can be especially attractive when purchased at a discount in a weak market. Stocks like Johnson & Johnson – JNJ, which has paid quarterly dividends without fail for half a century, are perennial cash cows. Selling everything from first aid salves to sophisticated medical devices the company is well diversified with a global presence. Proctor & Gamble – PG, is synonymous with consumer products and is generally considered one of the world’s best run companies. The company sells its products in every corner of the earth and has increased its dividends by almost ten percent since last year. Many would consider this stalwart one of the best stock investments in a declining market.

The best stock investments in a declining market are not limited to large cap companies. There are lots of startup companies with promise. Fundamental analysis of these companies is important as it is the accuracy of earnings estimates that is most important in predicting when promising small cap company will join the ranks of large cap companies in future years, making investors rich along the way. The point of this article is not to invest specifically in any of the stocks mentioned but to investigate investment opportunities in order to find the best investments in a declining market.

More Resources

Boeing was trading at over a hundred dollars a share in early 2007 before the recession and the announcement of problems with delivering the aircraft on time. The stock dipped below forty dollars a share at when the market crashed and has been at seventy-five dollars a share as recently as two months ago. Today BA closed at $62.01 a share. Dividend stocks can be attractive for long term investing and Boeing fits the bill there as it has steadily paid dividends since the Second World War. Recent figures indicate that Boeing has orders from eighty-seven customers for over eight hundred aircraft. It expects to assemble ten a month at its Everett, Washington plant, another three a month at a new plant in North Charleston, South Carolina. The price tag for the delivered jet will run above or below two hundred million each depending upon design variations. Two hundred million times eight hundred comes to roughly one hundred and sixty billion US Dollars. Depending upon just how efficiently Boeing manages production of this airplane there could a lot of cash to pass out as dividends and reinvest in future endeavors. That comes to the point of whether or not it is a good idea to invest in Boeing at this time.

With efficiency in mind it is useful to know that Boeing is using a large number of subcontractors on this project. Subcontractors include Mitsubishi Heavy Industries, Alenia Aeronautica, Korea Aerospace Industries, Global Aeronautica, Kawasaki Heavy Industries, Spirit AeroSystems, Saab, Latécoère, TAL Manufacturing Solutions Limited, Messier-Dowty, and Hamilton Sundstrand. Subcontracted assembly parts will be made and tested by subcontractors and then shipped in specially refitted Boeing jets to facilities in the USA where assembly of an entire jet is expected to take only three days! There is always a risk in picking new winners in the stock market. Jump in too soon and you might lose money. Jump in too late and you miss the boat. In deciding whether to invest in Boeing investors will need to decide just how profitable this jet will be over the long term. As always we are not suggesting one invest in Boeing or that one ignore the stock. Rather see this as an exercise in stock evaluation.

More Resources