The Boeing Co. (BA) is in trouble.
If it doesn’t get its troubled 737 Max planes certified by U.S. and international regulators and in the air by this summer, it’s dwindling cash and negative cash flow from operations will implode its stock.
But, unfortunately for them, the 737 Max isn’t Boeing’s only aircraft problem.
Regulators are investigating the company’s 787 Dreamliner over whistleblower claims that its oxygen systems don’t work, that managers let defective parts get through quality control checks, and that, when workers installed planes’ floorboards, they let three-inch-long razor-sharp shards of titanium fall the plane’s sensitive electronic equipment.
But, also, despite all its problems, Boeing isn’t going out of business. It’s too important to the American military and the U.S. economy.
But that doesn’t mean it’s not too big to fail (in terms of its stock price).
Investors should be asking themselves what to do with Boeing shares at a time like now: buy, sell, or hold?
A Duopoly Between the U.S. and E.U.
Boeing, headquartered in Chicago, Illinois, and Airbus SE (EADSY) (Boeing’s only real competitor), a European consortium headquartered in Linden, Netherlands, together control 99% of the world’s commercial airplane manufacturing.
In 2018, Boeing edged out Airbus by delivering 20 more planes to become the “largest” aircraft producer in the world. That’s already changed. Airbus, whose operational head offices are in Toulouse, France now delivers a lot more planes than Boeing.
The fact that Boeing and Airbus are a duopoly, two essential monopolies in the U.S. and the European Union, who compete head to head, means they are both too big to fail.
Boeing is too important to the U.S. military and America’s economy to ever disappear.
While declaring bankruptcy is a remote possibility, if Boeing couldn’t service its debt and lenders weren’t willing to refinance, before all the disruption that would cause, the U.S. government would step in with a bailout.
That’s also only a remote possibility.
If Boeing’s financials sink so low it’s on the edge of financial insolvency, if its stock falls enough, it will become an acquisition target for a big private equity company. Or, more likely, it will get a huge cash infusion from a big bank or a consortium of banks or from mega-investor Warren Buffett.
I’m on record, on Fox Business Network’s Varney & Co., speculating that Warren Buffett will step in and, for a handful of warrants, pony up at least $10 billion to carry Boeing through its times of trouble.
Based on that supposition, I want to own Boeing stock. It’s just a matter of where for me.
Because Boeing’s facing a cash crisis, it has around $10 billion on its books, but its operating cash flow now annualizes at negative $2.5 billion, its levered free cash flow annualizes at negative $3.3 billion, and it has an annual dividend cost of $4,626,133,800.00.
Something’s got to give.
Maybe it will be the dividend. It could be cut since the company has to borrow to pay it now.
That would hit the stock.
Boeing stock is only up a fraction today, despite the market soaring.
At close to $317 a share, it’s only $14.28 above its 52-week low of $302.72.
Buy, Sell, or Hold? Here’s What You Need to Do
If I owned Boeing stock lower than where it is now, meaning I have a profit in it, I wouldn’t sell it. It will eventually recover because it is TBTF (too big to fail), and it will survive and eventually thrive again.
If I owned Boeing at some higher price, maybe even its 52-week high of $446.01, I’d be down 29% and very unhappy; but I wouldn’t sell, unless I had gains elsewhere that I wanted to offset for tax purposes.
If I owned Boeing, I wouldn’t sell it. I’d hold it.
However, because I believe Boeing will make a turnaround, if I owned Boeing, I’d be looking to buy more at distressed prices.
Personally, I don’t own Boeing. But I want to buy some and I’m looking for an entry.
Right now, I see Boeing stock facing some upward resistance around $320. If the stock firms up here and gets above $320 on good news, I’d be a buyer at around $320 to $325.
If I had to chase it a little higher, I would. If the stock opened $50 higher on news of a big investor stepping in, I’d probably wait and see if there was a pullback, then I’d try and get in. If there isn’t a pullback, I might miss the ride.
What I’m looking at now is the stock not holding above $320 and having broken that once strong “support” level and plummeting to $302.72.
That gave me pause because Boeing now has major support at $300. Getting to $302.72 was so close to $300 support, I thought, if the stock was going to break below $300, it could see some heavy selling.
As a trader, I was hoping for that. I would buy Boeing stock on any hard break below $300. The harder and the steeper the break below $300, the more I’d buy.
But we haven’t gotten there, and we may not get there. But we could.
The big picture for me now (and you) is how markets are reacting to the spread of the coronavirus.
Boeing plane orders are being affected by it. If the virus spreads, and there’s no cure, and the death rate of infected persons increases, I believe markets will re-test their recent lows and head lower.
Boeing would likely break $300 and I’d be looking to buy.
But, none of that might happen. Efforts to contain and cure the coronavirus could be successful at any time, in which case stocks would soar in a typical “relief rally” taking Boeing shares along for the ride.
Because I don’t want to miss out on Boeing’s eventual reversal of fortunes, if I see markets calm down and firm up on any good news about the coronavirus, I’d probably sell put options on Boeing.
By selling $300-strike price puts on Boeing at around $6 expiring March 20, 2020, I’d either get to keep the $6 a share I’d collect for selling the puts (if Boeing is above $300 by expiration), or I’d have to buy Boeing for $300 a share if by expiration Boeing stock is anywhere below $300.
Since I would have collected $6 a share, my actual cost for Boeing shares, if I must buy them, would be $294 a share.
I could live with owning shares at that price. And if the stock falls more, I’d buy more.
That’s how I’d play Boeing today.