Boeing stock took a serious hit in the first 20 days after one of its 737 Max 8 jets crashed in Ethiopia. But this could make the case to invest in Boeing Co. (NYSE: BA) even stronger.
But Wall Street speculation hangs on a news cycle that’s always in flux.
With investing, it’s important not to let bad news color your perceptions of a company.
Plane crashes are terrible, but headlines are short-lived. Ultimately, stocks move on financial fundamentals, which operate independent of headline news much of the time.
BA’s financials are great. It’s a leader in the airline and defense industry, and we see the current Boeing stock price as a great buying opportunity right now.
Why Boeing Will Pull Through
Boeing has experienced robust global demand and strong production figures for years. The stock saw an 89% rise after a record production increase in 2017.
But the stock dropped 20% after its second 737 Max 8 jet crashed within a span of three months. That’s a $60 dip.
Not surprisingly, though, the Boeing stock price today has yet to reach its six-month low of $322.50. It stands at $364.94, and there’s question of whether the price will even stumble any further.
Boeing has apologized and owned the tragedy, reportedly patching the bug in the sensor responsible for both crashes.
And Wall Street is also reacting as it typically should: For Wall Street, bad news means a sell-off.
But if you’ve watched Wall Street long enough, you’ve likely seen companies rally from seemingly fatal PR nightmares and investors wishing they hadn’t unloaded stocks that became bargains by plunging in the wake of bad news.
The BA stock has done this before. The last time was a little over five years ago, on March 8, 2014, when Malaysia Airlines Flight 370, a Boeing 777-200ER, disappeared.
BA fell 5.5%, from $128.54 to $121.89, in the five days that ensued. Only three months later, though, the stock rallied to $138.25, a 13% jump.
Take United Continental Holdings Inc. (NASDAQ: UAL), which most people know as United Airlines. In the past two years, UAL has seen scandal after scandal, from yanking passengers out of their seats to forcing puppies into their overhead compartments.
Despite these events, the UAL stock reached its highest point in five years by November 2018.
UAL’s profits continued to be not only strong but consistent. They have risen almost 40% since losses were booked in 2017.
The lesson here is that investors shouldn’t flee from short-term bad news. Even fatal news.
Now that you know Boeing will recover from this controversy, here’s how high the stock price can go…
Boeing Stock Expected to Be Strong on Profits
Despite Boeing’s involvement in these tragedies, it’s still one of the leading builders of aircraft in the world. It’s a profit leader.
Negative news also can’t derail a company with such a major role in defense development for the U.S. government and nations abroad.
In just the past year, BA scored several new contracts with the federal government for building products to refuel planes to helicopters.
The U.S. Air Force plans to buy 15 KC-46A Pegasus tankers for $3 billion. These are aircraft Boeing makes that fuel other planes while they are in the air. Boeing is also scheduled to produce helicopters – the Apache, Chinook, and P-8 Poseidon – for use in anti-surface ship and anti-submarine warfare.
These plans and contracts are ultimately far more significant than a short-term public relations crisis and are very likely to reward shareholders for standing fast.
Ultimately, BA will get through the controversy surrounding the 737 Max 8. Though these tragedies won’t be erased from Boeing’s track record, leaving a lasting imprint on the hundreds affected, Wall Street will at some point turn its attention to Boeing’s production.
Boeing’s size is almost impenetrable, and nothing speaks to this like the recent headlines on Indonesian airline Garuda, which canceled its 737 Max 8 orders… in favor of other Boeing jets. This does not hurt Boeing’s bottom line.
The company’s full profit potential makes it a bargain today.
Wall Street analysts forecast a BA near-future share price of $525 – a more than 30% rise from current levels.
Source: Money Morning