For years, I was a big fan of Boeing Co. (BA).

Travel was growing by leaps and bounds in Asia, especially China.

And air carriers around the world were upgrading their fleets to newer, more fuel-efficient planes.

That meant Boeing was going to be a big winner. Plus, it’s also deeply embedded in the US aerospace and defense industries.

Even after the 737 MAX debacle in which 346 people died in two horrific crashes, I stood by the stock

But in recent weeks, I have had a sea change and can no longer support Boeing as an investment.

Simply stated, the company has a poor earnings track record that now totals three years in a row – and a $641 million loss in the first quarter alone.

In place of Boeing, I am recommending a defense maker set to double its earnings in the next 3.5 years.

And did I mention that it trades for half the cost of BA?…

The Wheat And The Chaff

Now then, I didn’t come to this decision lightly. I knew former CEO Dennis Muilenburg for years and had a great respect for him.

But even his firing and replacement have not put the company on a solid flight path.

For instance, the fortunes of 737 MAX have not really improved. The firm has received 323 cancellations so far this year and another potential 48 from Brazilian airline GOL.

These planes cost between $100-$135 million each, so that ‘s nearly $37 billion in lost revenue. Getting up to full speed won’t be easy.

Boeing handled 87% of the FAA testing on the 737 MAX first time around. That won ‘t happen again.

And that delays the entire re-certification process, even if there are buyers.

Which brings up another key point. With the economy weak from COVID shutdowns, airlines are struggling just to stay afloat, let alone buy new aircraft.

Plus, there are recent reports that a 787-9 has reported 4 incidents – in one week. If 787s have to be grounded that would be a body blow to the struggling firm.

But that’s not all. The Starliner rocket for NASA that had a catastrophic failure earlier this year was found to have 80 changes needed before a retest.

Boeing’s KC-46 Pegasus tanker is $4.6 billion over budget and counting. And we recently learned of a new critical problem – excessive fuel leaks.

There are actually more issues. But you get the point.

And yes, I know that Boeing reports tomorrow and it may beat forecasts and start a rally. But I’m not willing to change my view until I see at least three strong quarterly reports in a row.

That’s why I say time to replace Boeing with a company that can be a big player in the current economic landscape and for what lies ahead.

And that company is Curtiss-Wright Corp. (CW).

The Curtiss is from Glen Curtiss, the father of naval aviation. And Wright, you know, the brothers that started the whole flying thing.

Charles Lindbergh’s Spirit of St. Louis was powered by a Wright Aeronautical engine.

The company launched in 1929. But even the Great Depression couldn’t keep it grounded.

This is a firm that pioneered forged aluminum pistons and air-cooled engines along with other breakthrough technologies. By the 1950s, the company was starting to pioneer plastics and jet engines.

Still Ahead of the Curve
For more than 90 years now, Curtiss-Wright has stayed ahead of the curve.

Today, it’s business is built into four main sectors: Defense (43% of revenue), General Industrial (24%), Commercial Aviation (17%), and Power Generation (16%).

Surprisingly, the defense sector doesn’t break down as you might expect. Nuclear submarines and aircraft carriers are 23% of that sector. Aerospace is 16% and ground forces are 7%.

Its power generation business focuses on AP1000 nuclear reactors, so you can see some overlap with its defense nuke business.

And all its businesses are wrapped a core competency that keeps Curtiss-Wright in great demand in its sectors – embedded computing.

Embedded computing is a computer system that has a dedicated function within a larger mechanical or electrical system. Cars, planes, ships and many other things have computer systems within the larger operating whole.

And this is a very big industry. According to Insight Partners, embedded computing was a $34 billion industry in 2018 and will be worth roughly 68 billion by 2027.

Nextgen 5G wireless broadband is going to give the sector a big boost for its own equipment demands as well as the capabilities it will provide for other industries.

But in the meantime, Curtiss-Wright is already well-positioned to take advantage.

A Discount Buy

Yes, I know this stock is not a household name. But it did recently get a nice piece of earned media in Barrons, which helps build the brand name.

Its operating margins are growing nicely. That has helped CW produce more than $1.6 billion in free cash flow in the last five years.

The company won’t present its Q2 numbers until early August, but Q1 numbers were solid. Defense sector sales were up 24% as operating income grew by10%.

The stock is trading at a 50% discount from the S&P 500’s price-earnings ratio.

And if that doesn’t spell built-in upside, consider that it is growing per-share profits more than three times faster than sales and by an average 21%.

That means they are set to double in roughly 3.5 years. Boeing trades at roughly $176 a share while CW goes for about $92, or nearly 48% less.

Add it all up and you can see this is a much better play for your portfolio than Boeing.

It’s one you can count on to perform nicely for many years to come.

Cheers and good investing,

— Michael A. Robinson

Source: Strategic Tech Investor