Boeing In Retreat After Engine Failure

Dow component Boeing Co. (BA) is trading lower by more than 8% in Monday’s pre-market after a 777 jet blew an engine and dropped debris on a Denver neighborhood. The jet landed safely after the incident, prompting the carrier to remove the planes from service.  The Federal Aviation Administration has ordered inspections on all aircraft with similar Pratt & Whitney engines manufactured by Raytheon Technologies Corp (RTX), who also fell after the news.

Boeing Takes Quick Action

Boeing acted quickly, telling other airlines flying the Pratt-equipped 777 to also ground their fleets. The United States and Japan had 128 of those jets in service at the time of the incident. The quick response contrasted sharply with the 2019 Ethiopian 737-MAX crash when former CEO Dennis Muilenberg initially refused to ground the airplanes and called former President Trump to stop the FAA from taking action.

The news could impact investor sentiment and passenger confidence following the recertification of the MAX in the fourth quarter of 2020. Southwest Airlines Co. (LUV) just announced the troubled jetliner would be back in service on Mar. 11 while Boeing recently reported modest improvement in its January order and delivery update, raising hopes the aerospace giant was finally putting the crash and the pandemic behind them.

Wall Street and Technical Outlook

Wall Street consensus stood at a ‘Hold’ rating ahead of the news, based upon 9 ‘Buy’ and 8 ‘Hold’ recommendations. More importantly, four analysts recommend shareholders close positions and move to the sidelines, despite the MAX recertification. Price targets currently range from a low of $165 to a Street-high $307 while the stock is set to open Monday’s session nearly $25 below the median $235 target. It’s hard to gauge what impact the weekend events will have on ratings.

The stock carved a massive double top pattern between 2018 and February 2020, with support at 292. It broke down on heavy volume during the pandemic decline, hitting a 7-year low at 89.00. A three-legged recovery stalled below the Mar. 9 continuation gap in December, which has narrowly aligned with shallow Fibonacci retracement levels.  It’s currently trading below the 200-week moving average, oscillating across the 50-week moving average, indicating the secular downtrend remains fully intact.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Major Averages Plummet to Start 2021

Quick Update

In a quick update to kick off 2021, I wanted to summarize my correct calls, and what I profited on since beginning to publish these updates. While nobody can predict the future, the major calls I am most proud of since writing these letters are calling the short-term downturn in small-cap stocks, adding emerging market exposure, and hedging or selling the U.S. dollar.

I switched my call on small-caps, specifically the Russell 2000 from a HOLD to a short-term SELL on December 16th. The iShares Russell 2000 ETF (IWM) surged to unprecedented record gains since November 2020, however, I believed then and still believe that the index has overheated by many measurements. Since December 16th, the IWM ETF is largely flat.

However, since peaking on December 23rd, the IWM has underperformed ETFs tracking the larger indices and has declined by nearly 3%. While I am still bullish on small-caps in the long run and maintain my STRONG BUY call on the Russell for the long-term, it is contingent on a pullback . I believe that pullback may have begun. I am hoping for a minimum 10% decline before jumping back in for the long-term.

Emerging markets have been some of the best performers in 2020, and I have made some bullish calls on specific regional markets for 2021 as well. I have been touting emerging markets since my first report, but when I switched my focus to specific regions, my calls became even more correct. I called Taiwan ( EWT ETF) the best bet for emerging market exposure while avoiding the risks and baked in profits of China on December 3rd. Since then, the EWT ETF which tracks Taiwan has gained over 7% while the MCHI ETF which tracks China has barely gained over 1.4%. The Taiwan ETF has also outperformed the SPY S&P 500 ETF and the IEUR ETF which tracks Europe.

In conjunction with my bullish calls on emerging markets, my bearish calls on the U.S. dollar were also correct. Since I started doing these newsletters about a month ago, I consistently said that the dollar should be hedged or avoided because of the Fed’s policies, effect of interest rates this low for this long, government stimulus, strengthening of emerging markets, and inflation. I also said that any minor rally the dollar would experience would be fool’s good.

Since the dollar briefly pierced the 91-level on December 9th, it has fallen nearly 1.4%. Despite it experiencing another mini-rally and nearly piercing the 91-level again on December 22, I remained steadfast in my bearish outlook of the dollar. Since the open on December 23rd, the U.S. Dollar has declined another 0.77%. I believed it would drop back below 90 before the new year, and here we are to start off 2021, with the dollar at 89.85.

Markets kicked off the first trading day of 2021 with a dud, due to further concerns of COVID-19 cases and the Georgia Senate run-off elections.

News Recap

  • Monday (Jan.4) marked the first negative start to a year for the Dow Jones since 2016. The Dow Jones closed 382.59 points lower, or 1.3%, at 30,223.89. The Dow at one point fell more than 700 points.
  • The S&P 500 also fell 1.5% to 3,700.65, the Nasdaq fell 1.5%, and the small-cap Russell 2000 fell 1.47%.
  • This was the biggest one-day sell-off since Oct. 28 for the Dow and S&P 500, and the Nasdaq’s worst sell-off since Dec. 9.
  • While the sell-off to start the year could be due to natural consolidation, the growing number of COVID-19 cases around the world and its potential impact on the global economic recovery weighed on investors. To start the year off, U.K. Prime Minister Boris Johnson announced a national lockdown to slow the spread of a new, more contagious, coronavirus strain. With this lockdown, people are only allowed to leave their homes for essentials, work if they can’t from home, and exercise. Most schools, including universities, will also move to remote learning.
  • According to data compiled by Johns Hopkins University , more than 85 million COVID-19 cases have been confirmed globally, including 20.7 million in the U.S. and 2.7 million in the U.K.
  • Pay very close attention to the Georgia Senate run-offs on Tuesday (Jan. 5). The balance of power in the Senate is hanging on the vote and markets could be volatile due to the results. If the Democrats gain a majority, it could impact market performance and leave Biden’s powers largely unchecked. If the Republicans keep just one seat, it could likely check Biden’s more progressive ambitions.
  • Coca-Cola (KO) and Boeing (BA) were the laggards on the Dow, falling 3.8% and 5.3%, respectively. Real estate stocks were the worst performing on the S&P and fell 3.2%. Utilities also declined 2.6%.
  • About 4.6 million people in the U.S. have now gotten a COVID-19 vaccine.

Stocks dropped sharply on Monday (Jan. 4), to kick off 2021. It was the first time since 2016 that the Dow Jones started a year off with declines and was the biggest one-day sell-off since Oct. 28 for the Dow and S&P 500. It was also the Nasdaq’s worst one-day decline since Dec. 9.

Several catalysts can be blamed for the gloomy start to the year: natural consolidation, COVID-19, and the Georgia Senate runoff elections.

First and foremost, a decline like this was bound to happen, and I called this happening in the early part of the year. I still believe that there will be a short-term tug of war between good news and bad news, and that these moves are manic and based on sentiment. There was no pullback to end 2020 as I anticipated, but I still believe that markets have overheated in the short-term. Was Monday (Jan. 4) the start of a correction? Possibly. But either way, I think that between now and the end of Q1 2020, a correction could happen.

Carl Icahn seemingly agrees with me, and told CNBC on Monday (Jan. 4), “in my day I’ve seen a lot of wild rallies with a lot of mispriced stocks, but there is one thing they all have in common. Eventually they hit a wall and go into a major painful correction.”

I believe, though, that corrections are healthy and could be a good thing. Corrections happen way more often than people realize. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017). I believe we are overdue for one since there has not been one since the lows of March 2020. This is healthy market behavior and could be a very good buying opportunity for what I believe will be a great second half of the year.

Meanwhile, COVID-19 continues surging and there are very real fears of new strains discovered in the U.K. and South Africa that could be more contagious. U.K. Prime Minister Boris Johnson announced a national lockdown that could potentially last until mid-February. With this lockdown, people are only allowed to leave their homes for essentials, work if they can’t from home and exercise. Most schools, including universities, will also move to remote learning. This could be an ominous sign for stricter lockdowns to be implemented in other regions across the world.

Outside of COVID-19, political uncertainty has returned to the markets. The balance of power in the U.S. Senate is at stake, with Georgia run-off Senate elections set to occur on Tuesday (Jan. 5). Investors are likely to prefer a divided Senate. If the Democrats win both elections and wrestle away Senate control from the Republicans, it could leave President Biden’s powers largely unchecked, and enable him to pass more of his ambitious and progressive policies. Many investors do not anticipate these to be very market friendly. As results start to come in Tuesday evening, markets could react in a volatile manner.

According to John Stoltzfus , chief investment strategist at Oppenheimer Asset Management, the S&P 500 could fall by 10% if the Democratic candidates win the Georgia runoffs.

“It is thought by not just a few folks on Main Street as well as on Wall Street that if tomorrow’s run-off results in a sweep for the Democrats — providing them with control of the Senate as well as the House — that it would bode ill for business with the likelihood that corporate tax rates could rise substantially,” Stoltzfus said.

This will also be a busy week for economic data with the manufacturing PMI report said to be released Tuesday (Jan. 5) and the non-farm payrolls report set to be announced Friday (Jan. 8).

Monday’s sell-off (Jan. 4) serves as a very painful reminder that markets will still have to weigh the near-term risks against some of the more positive mid-term and long-term hopes on vaccines and re-opening.

The general consensus is that 2021 could be a strong year for stocks, despite short-term headwinds. According to a CNBC survey which polled more than 100 chief investment officers and portfolio managers, two-thirds of respondents said the Dow Jones will most likely finish 2021 at 35,000, while five percent also said that the index could climb to 40,000.

Therefore, to sum it up:

While there is long-term optimism, there are short-term concerns. A short-term correction between now and Q1 2021 is very possible. But I do not believe, with conviction, that a correction above ~20% leading to a bear market will happen.

Does the Dow Approach 31,000 or 29,000 Before Mid-2021?

I have too many short-term questions for the Dow Jones. I believe it’s just as likely for the Dow to touch 29,000 again as it is to touch 31,000 before March.

After trading as low as around 29,650 at one point before the new year (Dec. 21), the Dow has remained firmly above 30,000. However, it has traded largely sideways over the last few weeks, despite opening Jan. 4 with a record high.

Despite some long-term optimism, for now, my short-term questions take precedence. I don’t like how COVID-19 is trending (who does?), I am disappointed in the vaccine roll-out, and I am concerned about the Georgia election. In the short-term, I am not convinced that the Dow will stay above 30,000 for more than a week at a time and I am also not convinced that it will hit more all-time highs before March.

In the short-term, I believe it is just as likely for the Dow to approach 29,000 as it is to approach 31,000 in the early months of 2021.

While I think a 35,000 call to close out 2021 is a bit aggressive, I do believe that the second half of 2021 could show robust gains for the index.

With so much uncertainty and the RSI still firmly in hold territory, the call on the Dow stays a HOLD.

This is a very challenging time to make a call on the Dow with conviction. But one thing I do believe is that if and when there is a drop in the index, it will not be strong and sharply relative to the gains since March 2020. I believe that it is more likely than not that we will be in a sideways holding pattern until vaccines are available to the general public by mid-2021.

For an ETF that attempts to directly correlate with the performance of the Dow, the SPDR Dow Jones ETF (DIA) is a strong option.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Boeing 737-MAX Set For Return To Friendly Skies

Dow component Boeing Co. (BA) rallied to a 5-month high and pulled back in Thursday’s session after the U.S. Federal Aviation Administration (FAA) announced it had cleared the troubled 737-MAX jetliner for a return to flight. Bloomberg then reported that EU approval could come as early as this week, removing the final hurdle to putting the plane back into service since the worldwide grounding in March 2019.

Continued Headwinds

The stock is trading above the 200- day moving average for the first time since November 2019 but Thursday’s reversal acknowledged continued headwinds that won’t be fixed by a return to flight. First, many folks will avoid air travel despite the rollout of effective vaccines because a large minority will refuse to take shots, deterred by the anti-vax movement. Second and more importantly, the virtual meeting space has grown hugely popular with corporations, allowing them to greatly reduce business travel budgets.

Baird analyst Peter Arment upgraded Boeing from ‘Neutral’ to ‘Outperform’ after the news, raising their price target from $165 to a Street-high $306. Ament believes that “risks of 737-Max delays are diminishing with a return to service now imminent” and expects vaccines to aid in the mega cap’s recovery to traditional growth. He also predicts a “multiyear air travel recovery” that requires investors to be patient, looking “further out with each year improving year-over-year”.

Wall Street And Technical Outlook

Wall Street consensus hasn’t changed much despite last week’s upgrade, with a cautious ‘Hold’ rating based upon 9 ‘Buy’, 10 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $137 to a Street-high $306 while the stock closed Friday’s session just $1 below the median $200 target. It isn’t likely to stray too far from the round number in coming weeks, with the pandemic surging in a second wave and 737-MAX approval in the rear view mirror.

The stock broke down from a two-year double top pattern in February 2020 and fell to a 7-year low in double digits. It remounted the broken 200-month moving average at 160 in June and tested that level successfully ahead of last week’s news. However, June resistance at 234 remains in place while the 50-month moving average is descending into narrow alignment. This formidable barrier will be tough to break without major upticks in revenue and order flow.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Boeing Upgrades China’s Aircraft Demand; Forecasts Annual Passenger Traffic Growth of 5.5%

Boeing, the world’s largest aerospace company, upgraded their rolling 20-year forecast for China’s aircraft demand and said the world’s second-biggest economy remains on track to become a leading global aviation market with eyes on 20-year demand for commercial airplanes and services worth $3.1 trillion.

The Boeing Market Outlook forecasts China’s airlines to acquire 8,600 new airplanes worth $1.4 trillion and commercial aviation services for $1.7 trillion over the next 20 years. That will help the aircraft producer to recover from the COVID-19 pandemic crisis.

The U.S. planemaker said the world’s second-largest economy has seen rapid growth in middle-class income, robust economic growth and fast-growing urbanization, indicating the country will lead passenger travel globally over the next few years. Boeing forecasts China’s annual passenger traffic growth to be 5.5% over the next 20 years.

Late last month, Boeing reported a loss for the fourth consecutive time in the third quarter as the slowdown in air travel demand due to the COVID-19 pandemic and grounding of 737 MAX hammered aircraft sales.

Boeing shares closed 3.46% lower at $182.15 on Wednesday; the stock is down about 45% so far this year.

Executive Comments

“While COVID-19 has severely impacted every passenger market worldwide, China’s fundamental growth drivers remain resilient and robust,” said Richard Wynne, managing director, China Marketing, Boeing Commercial Airplanes.

“Not only has China’s recovery from COVID-19 outpaced the rest of the world, but also continued government investments toward improving and expanding its transportation infrastructure, large regional traffic flows, and a flourishing domestic market mean this region of the world will thrive.”

Boeing Stock Price Forecast

Seventeen equity analysts forecast the average price in 12 months at $182.94 with a high forecast of $260.00 and a low forecast of $137.00. The average price target represents a 0.43% increase from the last price of $182.15. From those 17 analysts, eight rated “Buy”, eight rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $165 with a high of $238 under a bull-case scenario and $68 under the worst-case scenario. The firm currently has an “Underweight” rating on the global aerospace company’s stock. UBS Group set a $150 target price on the Boeing. The firm currently has a neutral rating on the aircraft producer’s stock.

Several other analysts have also recently commented on the stock. JP Morgan raised their stock price forecast to $190 from $155. Alembic Global Advisors upgraded shares of the Boeing to an overweight rating from a neutral rating and raised their price target to $184 from $150. Credit Suisse Group dropped their price objective to $74 from $84 and set a neutral rating on the stock. Canaccord Genuity reaffirmed a hold rating and issued a $155.00 price objective on shares.

Analyst Comments

“We view Boeing as a relative Underweight as we see better opportunities in the aftermarket. We view Boeing’s order book to be more at risk post-COVID than consensus based on our analysis. The main reasons are: 1) A vaccine will not fix airline’s ability to take deliveries overnight; 2) the 737 MAX delay trigger cancellation rights; and 3) the potential for additional 737 MAX delays is still outstanding,” said Kristine Liwag, equity analyst at Morgan Stanley.

“Based on our bottom-up MS Aerospace Retirement Analysis, we estimate there is a $73 billion downside risk to Boeing’s revenue in 2020-2025. If air traffic does not quickly recover back to 2019 levels and airlines don’t regain pre-COVID-19 profitability, there are significant risks of cancellations.”

Upside and Downside Risks

Risks to Upside: 1) 737 MAX successful re-entry into service converts inventory into cash. 2) Acceleration of aircraft retirements boost new aircraft demand. 3) Profitable customer airlines order new aircraft – highlighted by Morgan Stanley.

Risks to Downside: 1) Potential additional 737 MAX delays create additional downside risk to the program. 2) Delayed aircraft retirements lower new aircraft demand. 3) Distressed customers’ financials trigger order cancellations.

Check out FX Empire’s earnings calendar

Boeing Could Test March Low

Dow component Boeing Co. (BA) reported a Q3 loss of $1.39 per-share last week, underpinned by a 29.2% year-over-year revenue decline to $14.14 billion. Commercial airline revenue fell a staggering 56% y/y, held down by slumping demand and the 737 MAX grounding. The results beat bearish top and bottom line estimates but that didn’t forestall a sell-the-news reaction dumping the aerospace giant to a 5-week low. The stock has now reached September range support in the 140s, with a breakdown favoring a test of the May low near 114.

MAX 737 Grounding Coming To An End

The European Commission recently gave the OK for Boeing to return the troubled 737 MAX jetliner to the skies but the U.S. Federal Administration (FAA) has determined the software ‘fix’ for certain planes was not ‘adequate’. Even so, the jet should get its airworthiness certificate reinstated prior to year’s end, lifting a dark cloud off the company. However, the pandemic has taken its place, with at least two more years before a return to traditional demand.

Fitch downgraded Boeing debt to a highly cautious ‘BBB-‘ after the release, stating they don’t expect air travel to return to 2019 levels until the end of 2023. The rating agency noted that “downgrades reflect a prolonged recovery from the pandemic compared with Fitch’s original expectations, continued pressures from the 737 MAX grounding, and Fitch’s estimate that Boeing will be challenged to return financial metrics to levels consistent with a ‘BBB’ by the end of 2022.”

Wall Street And Technical Outlook

Wall Street has maintained a marginally-positive ‘Moderate Buy’ consensus based upon 7 ‘Buy’ and 8 ‘Hold’ recommendations. Amazingly, not a single analyst is telling shareholders to close positions, even though revenue may not return to pre-COVID levels for years. Price targets currently range from a low of $137 to a Street-high $260 while the stock is set to open Monday’s U.S. session just $7 above the low target.

Boeing topped out and sold off after the March 2019 Ethiopian crash and broke 200-day EMA support at year’s end. The first quarter’s pandemic decline completed a double top breakdown, signaling a secular downtrend that remains in force as we head through the fourth quarter. The stock has failed to test either broken support level, reinforcing the bear case while raising odds the downtick that started in June will eventually test the March low.

For a look at all of today’s economic events, check out our economic calendar.

Boeing Posts Fourth Straight Loss in Q3 as COVID-19 Pandemic Hurts Sales

Boeing, the world’s largest aerospace company, reported a loss for the fourth consecutive time in the third quarter as the slowdown in air travel demand due to the COVID-19 pandemic and grounding of 737 MAX hammered aircraft sales.

The U.S. planemaker’s third-quarter revenue plunged 29% to $14.1 billion, GAAP loss per share of $0.79 and core loss per share non-GAAP of $1.39, reflecting lower commercial deliveries and services volume primarily due to COVID-19. That was better than the market expectations of a loss of $2.52 per share on $13.90 billion in revenue.

Boeing recorded operating cash flow of $4.8 billion.

Earlier this month, the global aerospace company slashed its rolling 20-year forecast for airplane demand and said that the commercial aviation and services markets will continue to face significant challenges due to the COVID-19 pandemic, while global defence and government services markets remain more stable, sending its shares down about 7% on Tuesday.

The Boeing Market Outlook forecasts a total market value of $8.5 trillion over the next decade including demand for aerospace products and services. The forecast is down from $8.7 trillion a year ago due to the impact of the COVID-19 pandemic.

Boeing share fell about 1% to $153.8 in pre-market trading on Wednesday; the stock is down over 50% so far this year.

Executive Comments

“The global pandemic continued to add pressure to our business this quarter, and we’re aligning to this new reality by closely managing our liquidity and transforming our enterprise to be sharper, more resilient and more sustainable for the long term,” said Boeing President and Chief Executive Officer Dave Calhoun.

“Our diverse portfolio, including our government services, defence and space programs, continues to provide some stability for us as we adapt and rebuild for the other side of the pandemic.”

Boeing Stock Price Forecast

Eighteen equity analysts forecast the average price in 12 months at $188.06 with a high forecast of $260.00 and a low forecast of $147.00. The average price target represents a 21.14% increase from the last price of $155.24. From those 18 analysts, eight rated “Buy”, nine rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $181 with a high of $238 under a bull-case scenario and $68 under the worst-case scenario. The firm currently has an “underweight” rating on the aircraft producer’s stock. The Boeing has been assigned a $225.00 target price. The firm currently has a “buy” rating on the aircraft producer’s stock.

Several other analysts have also recently commented on the stock. Jefferies Financial Group reissued a “buy” rating and issued a $270 target price in August. Wolfe Research raised to a “peer perform” rating from an “underperform” in Sept. Sanford C. Bernstein downgraded to a “market perform” rating from an “outperform” rating and set a $165 price target.

Analyst Comments

“We view Boeing as a relative Underweight as we see better opportunities in the aftermarket. We view Boeing’s order book to be more at risk post-COVID than consensus based on our analysis. The main reasons are: 1) A vaccine will not fix airline’s ability to take deliveries overnight; 2) the 737 MAX delay trigger cancellation rights; and 3) the potential for additional 737 MAX delays is still outstanding,” said Kristine Liwag, equity analysts at Morgan Stanley.

“Based on our bottom-up MS Aerospace Retirement Analysis, we estimate there is $73bn downside risk to Boeing’s revenue in 2020-2025. If air traffic does not quickly recover back to 2019 levels and airlines don’t regain pre-COVID-19 profitability, there are significant risks of cancellations,” Liwag added.

Upside and Downside Risks

Upside: 1) 737 MAX successful re-entry into service converts inventory into cash. 2) Acceleration of aircraft retirements boost new aircraft demand. 3) Profitable customer airlines order new aircraft – highlighted by Morgan Stanley.

Downside: 1) Potential additional 737 MAX delays create additional downside risk to program. 2) Delayed aircraft retirements lower new aircraft demand. 3) Distressed customers’ financials trigger order cancellations.

Check out FX Empire’s earnings calendar

Boeing Lowers Aircraft Demand Forecast on COVID-19 Pandemic Crisis, Shares Plunge About 7%

Boeing, the world’s largest aerospace company, slashed its rolling 20-year forecast for airplane demand and said that the commercial aviation and services markets will continue to face significant challenges due to the COVID-19 pandemic, while global defense and government services markets remain more stable, sending its shares down about 7% on Tuesday.

The Boeing Market Outlook forecasts a total market value of $8.5 trillion over the next decade including demand for aerospace products and services. The forecast is down from $8.7 trillion a year ago due to the impact of the COVID-19 pandemic.

Airlines globally have begun to recover from a greater than 90% decline in passenger traffic and revenue early this year, but full recovery will take years, according to the outlook.

“Despite lowering numbers, particularly for commercial aircraft, we see further downside risk as the forecast implies peak production levels on average through 2029,” said Kristine Liwag, equity analyst at Morgan Stanley.

Following this release, Boeing’s shares plunged 6.8% to $159.54 on Tuesday, the stock is down over 50% so far this year.

The U.S. planemaker said over the next 20 years, passenger traffic growth is projected to increase by an average of 4% per year and the global commercial fleet is expected to reach 48,400 by 2039, up from 25,900 airplanes today. During this period, Asia will continue to expand its share of the world’s fleet, accounting for nearly 40% of the fleet compared to about 30% today.

The 2020 Boeing Market Outlook includes projected demand for 18,350 commercial airplanes in the next decade – 11% lower than the comparable 2019 forecast – valued at about $2.9 trillion. In the longer term, with key industry drivers expected to remain stable, the commercial fleet is forecasted to return to its growth trend, generating demand for more than 43,000 new airplanes in the 20-year forecast time period, the company said.

The Boeing also projects a $2.6 trillion market opportunity for defense and space during the next decade.

“We derive a  price target of  $235  based on a  blended average of three valuation methodologies based on 3-year average premiums to the market: 1) 14.2X EV/EBITDA on our  FY22  EBITDA  estimate of  $11.0BB  derives a  price target of  $210;  2)  P/E  multiple  of20.8X on our FY22 EPS estimate of $9.30 derives a price target of $193; 3) 5.5% FCF Yield on our 2022 FCF/Share estimate of $16.60 derives a price target of $302,” said Sheila Kahyaoglu, equity analyst at Jefferies.

Boeing stock forecast

Seventeen analysts forecast the average price in 12 months at $189.25 with a high forecast of $260.00 and a low forecast of $147.00. The average price target represents a 18.62% increase from the last price of $159.54. From those 17, eight analysts rated “Buy”, eight rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley target price is $181 with a high of $238 under a bull scenario and $68 under the worst-case scenario. Boeing had its price target boosted by Credit Suisse Group to $184 from $154. The brokerage currently has a “neutral” rating on the aircraft producer’s stock.

Other equity analysts also recently updated their stock outlook. Edward Jones upgraded Boeing from a “hold” rating to a “buy” rating. UBS Group set a $150 price objective and gave the company a “neutral” rating. Canaccord Genuity restated a “hold” rating and set a $155 price target. Wolfe Research upgraded Boeing from an “underperform” rating to a “peer perform” rating. At last, ValuEngine downgraded Boeing from a “strong-buy” rating to a “buy”.

Analyst view

“We view Boeing as a relative Underweight as we see better opportunities in the aftermarket. We view Boeing’s order book to be more at risk post-COVID than consensus based on our analysis. The main reasons are: 1) A vaccine will not fix airline’s ability to take deliveries overnight; 2) the 737 MAX delay trigger cancellation rights; and 3) the potential for additional 737 MAX delays is still outstanding,” Morgan Stanley’s Liwag added.

“Based on our bottom-up MS Aerospace Retirement Analysis, we estimate there is a $73 billion downside risk to Boeing’s revenue in 2020-2025. If air traffic does not quickly recover back to 2019 levels and airlines don’t regain pre-COVID-19 profitability, there are significant risks of cancellations.”

Upside and Downside risks

Upside: 1) 737 MAX successful re-entry into service converts inventory into cash. 2) Acceleration of aircraft retirements boost new aircraft demand. 3) Profitable customer airlines order new aircraft – highlighted by Morgan Stanley.

Downside: 1) Potential additional 737 MAX delays create additional downside risk to program. 2) Delayed aircraft retirements lower new aircraft demand. 3) Distressed customers’ financials trigger order cancellations.

Boeing Shares Edge Higher After FAA Chief Nods 737 MAX Fixes

The Boeing Company (BA) climbed 2.38% in extended-hours trading Wednesday after Federal Aviation Administration (FAA) head Steve Dickson gave a tentative endorsement to the fixes the airplane maker has made to its troubled 737 MAX jet. “I like what I saw on the flight this morning,” said Dickson, per the Wall Street Journal, after sitting in the cockpit on a recent test flight over the Pacific Northwest with other Boeing and FAA pilots.

Since the agency grounded the MAX in March 2018, Boeing has made several hardware and software changes relating to the airplane’s flight-control system that led to two fatal crashes, which killed 346 people. Wednesday’s flight was earmarked as one of the final steps to tick off before the FAA grants approval for the jet to take to the skies again – possibly as soon as November.

Through Wednesday’s close, Boeing stock has a market capitalization of $93 billion and trades nearly 50% lower on the year. The shares have faced stiff headwinds from uncertainty to when the 737 MAX will fly again and slumping global travel demand brought about by the coronavirus pandemic.

Passage of Preventative Bill

As the MAX waits for regulatory approval, the House Transportation Committee approved a bipartisan bill Wednesday that aims to prevent mistakes that downed the airliners from reoccurring in the future. Under the legislation, the FAA has more say in which Boeing employees carry out safety reviews on the agency’s behalf. It also increases whistleblower protections and introduces civil fines for manufacturers who fail to fully disclose details of critical flight-control systems.

Wall Street View

Not surprisingly, analysts remain somewhat divided about Boeing, given the ongoing uncertainty surrounding the challenges facing the company. Its stock receives 10 ‘Buy’ ratings, 1 ‘Overweight’ rating, and 14 ‘Hold’ ratings. Just one research firm currently recommends selling the shares. High-end price targets sit around $270, while lower targets come in around $125. The average 12-month target of $184.38 offers nearly 12% upside to yesterday’s $165.26 close.

Technical Outlook and Trading Tactics

After rallying over 100% between mid-May and early June, Boeing shares have remained entrenched in a sideways to lower trend. However, a recent cross of the moving average convergence divergence (MACD) line above its signal line indicates a shift in momentum.

Active traders should consider buying a volume-driven breakout above the blue four-month trendline and 50-day simple moving average (SMA) at the $165 level. In terms of trade management, look to book profits near the June swing high at $234.20 and limit downside with a stop-loss order placed under last month’s low at $145.02.

Stock Pick Update: August 12 – August 18, 2020

The broad stock market has extended its medium-term uptrend in the last five trading days (August 5 – August 11). The S&P 500 index got closer to its February 19 record high of 3,393.52 on Tuesday, August 11 as the daily high reached 3,381.01. But the index reversed lower and closed 0.8% below Monday’s closing price yesterday.

More than four months ago on March 23, the market sold off to new medium-term low of 2,191.86. It was a stunning 35.4% below February 19 record high of 3,393.52. The corona virus and economic slowdown fears erased more than a third of the broad stock market value. Since then stocks rallied 54.3%.

The S&P 500 index has gained just 0.49% between August 5 and August 11. In the same period of time our five long and five short stock picks have gained 1.62%. So stock picks were relatively stronger than the broad stock market. Our long stock picks have gained 1.65% and short stock picks have resulted in a gain of 1.59%.

There are risks that couldn’t be avoided in trading. Hence the need for proper money management and a relatively diversified stock portfolio. This is especially important if trading on a time basis – without using stop-loss/ profit target levels. We are just buying or selling stocks at open on Wednesday and selling or buying them back at close on the next Tuesday.

If stocks were in a prolonged downtrend, being able to profit anyway, would be extremely valuable. Of course, it’s not the point of our Stock Pick Updates to forecast where the general stock market is likely to move, but rather to provide you with stocks that are likely to generate profits regardless of what the S&P does.

This means that our overall stock-picking performance can be summarized on the chart below. The assumptions are: starting with $100k, no leverage used. The data before Dec 24, 2019 comes from our internal tests and data after that can be verified by individual Stock Pick Updates posted on our website.

Below we include statistics and the details of our three recent updates:

  • August 11, 2020

    Long Picks (August 5 open – August 11 close % change): V (+2.18%), WBA (+2.45%), ECL (+3.13%), XOM (+1.86%), PSA (-1.38%)

    Short Picks (August 5 open – August 11 close % change): COP (+3.14%), CCI (-2.75%), SPGI (-0.95%), PYPL (-5.01%), K (-2.35%)Average long result: +1.65%, average short result: +1.59%

    Total profit (average): +1.62%

  • August 4, 2020

    Long Picks (July 29 open – August 4 close % change): IFF (-2.27%), WBA (+0.24%), ED (-0.50%), XOM (-0.55%), WU (+7.13%)

    Short Picks (July 29 open – August 4 close % change): HES (+1.34%), XLNX (+2.30%), SPGI (-0.71%), APD (-3.33%), KO (-3.01%)Average long result: +0.81%, average short result: +0.68%

    Total profit (average): +0.75%

  • July 28, 2020

    Long Picks (July 22 open – July 28 close % change): MLM (-5.87%), MCD (+1.57%), INTC (-19.84%), XOM (-1.36%), IRM (+2.58%)

    Short Picks (July 22 open – July 28 close % change): COG (-0.38%), WY (+6.86%), SPGI (-1.77%), APD (-0.40%), HD (+1.02%)Average long result: -4.59%, average short result: -1.07%

    Total profit (average): -2.83%

Let’s check which stocks could magnify S&P’s gains in case it rallies, and which stocks would be likely to decline the most if S&P plunges. Here are our stock picks for the Wednesday, August 12 – Tuesday, August 18 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (August 12) and sold or bought back on the closing of the next Tuesday’s trading session (August 18).

We will provide stock trading ideas based on our in-depth technical and fundamental analysis, but since the main point of this publication is to provide the top 5 long and top 5 short candidates (our opinion, not an investment advice) for this week, we will focus solely on the technicals. The latter are simply more useful in case of short-term trades.

First, we will take a look at the recent performance by sector. It may show us which sector is likely to perform best in the near future and which sector is likely to lag. Then, we will select our buy and sell stock picks.

There are eleven stock market sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology, Communications Services, Utilities and Real Estate. They are further divided into industries, but we will just stick with these main sectors of the stock market.

We will analyze them and their relative performance by looking at the Select Sector SPDR ETF’s.

Based on the above, we decided to choose our stock picks for the next week. We will choose our top 3 long and top 3 short candidates using trend-following approach, and top 2 long and top 2 short candidates using contrarian approach:

Trend-following approach:

  • buys: 1 x Industrials, 1 x Financials, 1 x Energy
  • sells: 1 x Real Estate, 1 x Technology, 1 x Communication Services

Contrarian approach (betting against the recent trend):

  • buys: 1 x Real Estate, 1 x Technology
  • sells: 1 x Industrials, 1 x Financials

Trend-following approach

Top 3 Buy Candidates

BA Boeing Co. – Industrials

  • Stock broke above two-month-long downward trend line
  • Potential medium-term uptrend continuation
  • The resistance level of $200-240

SCHW Charles Schwab Corp. – Financials

  • Potential short-term uptrend continuation after breaking above downward trend line
  • The resistance level of $36-38 (short-term upside profit target)
  • The support level is at $33

CXO Concho Resources Inc. – Energy

  • Stock remains above the previously broken downward trend line
  • The resistance level and an initial upside profit target level is at $60

Summing up, the above trend-following long stock picks are just a part of our whole Stock Pick Update. The Industrials, Financials and Energy sectors were relatively the strongest in the last 30 days. So that part of our ten long and short stock picks is meant to outperform in the coming days if the broad stock market acts similarly as it did before.

We hope you enjoyed reading the above free analysis, and we encourage you to read today’s Stock Pick Update – this analysis’ full version. There, we include the stock market sector analysis for the past month and remaining long and short stock picks for the next week. There’s no risk in subscribing right away, because there’s a 30-day money back guarantee for all our products, so we encourage you to subscribe today.

Thank you.

Paul Rejczak

Stock Trading Strategist

Sunshine Profits – Effective Investments through Diligence and Care

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Middle-Week Screening. Seesaw on the Market. Silver and Alibaba are for long; Boeing is for short

Overview and trends

Across the pond, according to Reuters, European Union leaders did not reach solidarity on a coronavirus stimulus plan on Sunday, German Chancellor Angela Merkel said as marathon negotiations ran into a third day and acrimony mounted over the demands of rich but thrifty countries.

On Monday U.S. officials including Senate Majority Leader Mitch McConnell and Treasury Secretary Steven Mnuchin met in the White House to discuss another coronavirus stimulus package. Mnuchin reiterated he wanted to put a cap on spending to about 1 trillion dollars, well below House Speaker Nancy Pelosi’s $3.5 trillion relief plan. He also said the bill will focus on “kids and jobs and vaccines.” Meantime U.S. stocks were higher Monday as Wall Street came off its third straight week of gains and investors turned were busy analyzing more earnings reports including those from Halliburton and IBM (the latter beat estimates by a wide margin and added over 3% in post-market).

Yesterday stocks closed mostly higher on Wall Street Tuesday despite a final hour hiccup that nearly wiped out the market’s gains for the day. The S&P 500 added less than prominent 0.2%, after culminating as much as plus 0.8%. Banks, telecoms and energy stocks led the gains, offsetting mounting losses in technology stocks – something every smart investor must take seriously in the wake of more big techs’ like Apple, Amazon and Microsoft earnings underway – which pulled the Nasdaq index lower.

Oil prices joined precious metals’ extravaganza and rose, reaching the highest levels since March. West Texas Intermediate crude gained more than 3%, to 41 dollar 88 cents per barrel. Brent crude, in its turn, rose almost 3%, to 44 dollars 30 cents per barrel, at the U.S. market close.

Most investors wait as a savior for more financial stimuli from big governments and central banks to prop up stocks and bonds that are slowly losing steam.

Seemingly in response to that urge, many governments have already announced large amounts of additional fiscal support to keep tackling the pandemic. But S&P Global Ratings suggests that some countries, including the U.S., have shown “a degree of fiscal fatigue”. The problem is that additional spending will worsen the governments’ balance sheets, but they are still necessary to “prevent things from getting even worse.”

S&P Global Ratings earlier this month downgraded its forecast for the global economy. The agency now expects global GDP to shrink by 3.8% this year — worse than the 2.4% contraction it previously projected. So the central banks and governments really have little choice but to move on.

The end of the coronavirus pandemic could bring a large number of new asset managers. Recently published data from a research firm called eVestment showed that the number of new investment firm launches substituting some less lucky rivals tends to spike following economic crises.

Here’s why, according to data firm: As markets contract, asset management employees may be laid off. Instead of seeking out a new job, they start their own firms. Additionally, some of these employees leave their jobs voluntarily, with the goal of taking a new investment approach presented by market turmoil.

Conclusion: in order to survive hard times, one needs to be open to new trends and must possess the skill of distinguishing between winning and losing assets.

Trading ideas

Silver futures logged the highest finish in nearly 4 years at the beginning of the week, buoyed by expectations for further central bank stimulation that destroy the value of world major currencies and as the rise in global COVID-19 cases continues to threaten the economic recovery. September silver added almost a dollar, or 4.9% since July 17, to settle at $20.21 an ounce, the highest front-month contract finish since August 2016. Silver is known to be more choppy and volatile precious metal as compared to gold. But this year its uncharacteristic trade smoothness since mid-March leaves its older sister gold’s parameters derailed.

Alibaba’s affiliate company Ant Group, operating the mobile payment service Alipay, reportedly started the process of its initial public offering on the Hong Kong Stock Exchange and Shanghai’s Nasdaq-style STAR market simultaneously. In China Alipay is much more prominent than the namesake portal (alibaba.com) of Alibaba Group. Ant was previously valued at $150 billion after its last funding round in 2018, making it the world’s most valuable start-up.

Reportedly, Ant generated about 120 billion yuan or $17.1 billion dollars in revenue and nearly 17 billion yuan or $2.4 billion dollars in net profit last year. This is very good news for Alibaba stock which rose over 50% since April. Its earnings reporting day is scheduled for August 13, so there is plenty of time to judge this event keeping the stock in the portfolio.

Boeing’s reputation remains under siege even after the much-advertised test flight of Boeing 737 MAX couple of weeks ago. The company was forced to release a catastrophically damning set of documents to congressional investigators last week that included “conversations among Boeing pilots and other employees about software issues and other problems with flight simulators” for the 737 Max, the plane involved in two fatal crashes. The messages further complicate Boeing’s tense relationship with the Federal Aviation Administration, which can’t be satisfied to read the disdain with which Boeing treated the civil aviation regulators.

After the undisclosed outcome test flight, the Boeing share edged up almost 6.5% to $176, but its quarterly earnings date of July 29 will be Boeing’s judgement day, because there is nothing to cheer up its shareholders with. The company reported net loss of $5.72 a share in the previous quarter, which is expected to further deepen this time around, so Boeing is a definite short, which will be easy to cover at a profit thereafter.

For a look at all of today’s economic events, check out our economic calendar.

By Vladimir Rojankovski, Grand Capital Chief Analyst