Three Damaged Stars Go on Sale

 | Jul 24, 2014 | 3:05 PM EDT  | Comments
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Stock quotes in this article:

ba

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celg

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qcom

You let them come in, and then you buy them. That's how I feel about three different dinged stars today, stars that seem like they are dimming but which I believe are simply digesting their gains.

I'm talking about Boeing (BA), Celgene (CELG) and Qualcomm (QCOM).

Boeing has been under severe pressure for months now, in part because of worries that the aerospace cycle is at last coming to an end and because of competitive reasons involving a resurgent Airbus and the possibility that there will not be an export-import bank to help Boeing compete against its heavily subsidized European competitor.

Merrill Lynch echoed the former concern point-blank, betting that the aircraft queues aren't as deep as they seem and that cancellations could be coming. There are also worries about the defense exposure. I understand the ex-im worries. The Republicans do seem poised to crush it, even as I bet, like CEO Jim McNerney said on the conference call yesterday, it will be approved.

Why can this stock bounce back? First, I think aerospace is levered to overall travel and growing middle classes everywhere. Take a look at the charts of Wyndham (WYN) and Royal Caribbean (RCL) and Priceline (PCLN) if you want to know about the growth in tourism. The airlines are flush, as we saw from the Delta Air Lines (DAL), Southwest (LUV), United Continental (UAL) and American Airlines (AAL) earnings this week, and they need new fuel-economy planes. Boeing has them. That will be a tailwind for years and years to come.

Boeing is getting its costs down per plane, and that will increase the cash flow that everyone is suddenly fretting about. I think defense will go from being a hindrance -- because of the sequestration -- to a help as the global tensions bring back military spending. Plus the aircraft leasing companies have told me personally that they will buy any order-canceled planes that come into play.

In the end, Boeing is resting, after being the best performer in the Dow last year. I say that the fretting is wrong, even as I know now that the chart has even turned against this stock that's almost down 10% for the year. I have faith.

Celgene is difficult, because it had run so much into the print. The company has got a tremendous franchise in the blood cancer drug Revlimid that I think could go on for more than a decade, as I believe patent worries are overblown. It also has developing anti-pancreatic cancer and anti-psoriatic arthritis franchises. The guide-up was a "for real" one, but the CEO, Bob Hugin, is notoriously non-promotional and lets the drug approvals speak for themselves. There haven't been any big ones lately, but I think they are on the horizon. You buy this stock on weakness, and we have been getting downgrades the day after downdrafts, so I think you will get your chance tomorrow.

Qualcomm had an incredible quarter, and it has the best cellphone technology by far. However, it is having a spat with China over payments, and that's what caused the guide-down. I think the situation is resolvable, and when it is resolved, the stock will head even higher than where it was before it reported. Qualcomm is a totally loved stock and has been for years, and it will be again. I know that Intel (INTC) is now the star in the group, but always remember that Qualcomm dominates mobile, and mobile is, alas, the future.

I often talk about buying stocks at a discount, but when we get discounts, everyone flees. You have to be willing to take advantage of these, not run away from them. I know it is easier to buy "winners" that are on the run rather than "losers" that are getting hit. But these are three damaged stocks, not damaged companies, and that's the disconnect that makes for long-term investable bargains, even as the short term is quite simply, the house of pain. 

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