Boeing A Bargain At Lower Altitudes

Our Favorite Stock list has been consistently populated with growth and momentum stocks such as PayPal, Visa, Splunk, Coupa and Twilio. With some frothy values among this fast growing digital sector and a possible inflection point arriving with good or bad news out of the China and US trade progress this quarter, we are reviewing some undervalued companies held back by special factors that should be temporary.

Boeing: The majority of Boeing (BA) investors know this company owns almost half the commercial airline market and they are confident the grounding of the prized 737 Max fleet will be temporary. So this is mostly a timing event. The main questions are, how long will it take to get the Max back online and what will be the cash flow burn? There will be pressure to return this plane back to service given the disruption to the travel industry, but it will take a 10 country aviation panel until at least the end of July to conduct a comprehensive review and certification process according to the current action plan. Certainty of timing is impossible, but an August approval is mostly priced into the stock near 360 a share. If prices can hold 360 into July, then the odds jump that an upside breakout is near. Any new air-pockets adding uncertainty to this schedule could send the stock to a more ideal landing zone in the 320’s or just under 300 where heavier stock purchases should begin. A reinstated 737 Max could technically support a price forecast in the mid 500’s at a 25 multiple in 12 to 18 months after the all clear signal is declared.

Goldman Sachs (GS): is another stellar performer held back by investigations. New reports that our Justice Department is favoring a guilty plea for GS in its alleged role in the 1MBD Malaysia case helps speed the pricing in of negative expectations for this investment bank. While there is a worst case scenario for a return to the 160’s, should support at 190 fail. A move above 210 would more firmly establish an uptrend in GS to head back to its highs in the mid to upper 200’s. Malaysia seeks $7.5 Billion from Goldman and the US Justice Department may impose a fine of $2 Billion. Once the news arrives that Goldman will settle for something less than the $9.5 Billion, then the stock can begin working higher. Like Boeing, the news resolution event could be several months away creating some air-pocket risk of lower prices should the broad market correct.

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Disclaimer: This report may contain information on investments that are high risk and have substantial risk of principal loss. It is for informational purposes only. Statements in this communication ...

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