Tracking Boeing's Ups and Downs

 | Aug 18, 2014 | 12:18 PM EDT
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Patience is rewarded -- provided you are right. That's what I keep thinking about Boeing (BA) this morning.

This stock went down hard on a so-so quarter. But the principal reason it plummeted is because it had been a winner for a long time. In retrospect, Boeing's biggest sin was that it was up so much; it was the best performer in the Dow last year.

When the company delivered a good, but not a spectacular, number and when people saw execution issues in its defense division, well, that was all she wrote. Suddenly, a stock that had traded at $138 was at $118 and we had to scramble endlessly trying to find something really damning to say about it.

Of course, people are always willing to supply negatives. I heard that Airbus is soundly beating them. But that's just not the case. I heard that the Export-Import Bank might be de-funded, but that appears not to be the case. I heard that the downing of MH-17 in Ukraine meant air travel would be impeded and I even seized on a survey showing that a shocking number of people are now afraid to fly. But at least I noted that we have a history of that kind of worry and that it does get dissipated.

Then, there was the action in the airline stocks. They got hit after some amazing quarters in part because of worries about global travel related to MH-17 but also because expectations got too high. If the airlines weren't doing that well, there would be a cessation in orders, went the scuttlebutt. This chatter went on even though I had interviewed executives in the aircraft leasing business and they were lapping up any plane cancellation – although, apparently, there are none.

I even saw downgrades based on stories that said the cycle was over -- even as the business of air travel shows no let-up and the need to replace older aircraft with newer aircraft because of their reduced fuel usage is a tremendous secular, not cyclical, theme. The decline in oil gave credence to this downbeat view, even as Boeing has said endlessly that this mid-90s area is a total sweet spot for demand.

Of course, as the stock went down we then began to hear of the technical breakdown in the name. This meant that it was truly finished because who can refute a head-and-shoulders pattern, especially one without yield support?

Throughout this period, we got a vacuum of news from Boeing itself, as if nothing could be done to stem the speculation of other shoes to drop after its less-than-spectacular quarter. Well, until last Thursday, which is when Boeing's Greg Smith spoke at a conference and talked about a dramatic drop in cost per plane. That, alone, could free up some cash flow, which would allow for more buybacks and dividend boosts. Further, it lessens the pain from any defense contraction.

Now, let's deal with the defense issue. Are we really going to continue to pretend that we don't need to spend more on the military when there are so many hot spots? Now, I believe that the military isn't efficient at what it does but, more importantly, I believe that Congress wants to spend more on the military because it is popular.

Of course, next thing you know, the Boeing chart has gone from being a long-term head-and shoulders to a short-term reverse head-and-shoulders and the same people who didn't like it at $118, now love it at $123. And the momentum begins.

Now, let's complete the circle. What did happen at Boeing? Nothing, except that execution on a military contract that failed and the company flagged it right on the call. What happened to the stock? It was priced for perfection, and Boeing didn't give it to us.

Does this mean Boeing is out of the woods? Not really, as there are always analysts who want to get off a falling knife -- even when it has stopped falling.

But the "what ails Boeing?" guessing game has been answered by the stock: Nothing. The stock was tired. The Street was exhausted. The buyers were filled with ennui. So, the stock went down. And then went back up again as all quality companies do. This is why patience is required and rewarded.



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