How much skepticism was there that the Dreamliner would ever launch? How much disbelief was there that Boeing (BA) would ever get it right?
Obviously a ton, if you look at the stocks that are really rocking today. First, there's Allegheny Technologies (ATI), which is one of the best horses to play in the Boeing race. Allegheny Tech makes the finest titanium, which is used principally for aircraft. The stock has been kept down forever, but I simply need to remind you that when the last aerospace cycle took off in 2005-6, you had a remarkable run in this stock. In fact it was, at one point, the best-performing stock in the S&P 500. It has a very, very far distance to go to get to where it used to be.
Second is Precision Castparts (PCP). Here's the best-run aerospace play, having made a ton of money even when the Dreamliner was looking just like a dream. It is a name best played with deep-in-the-money calls, as it has virtually no dividend. The caveat is that the stock is expensive, selling at almost twice its growth rate, but I believe the numbers are way too low in the out-years, now that Boeing is shipping.
Here's an oddity: UBS downgraded Hexcel (HXL) to sell last week, on the basis of worries about production cuts for both Boeing and Airbus. I don't buy it. I think the cycle is intact. Hexcel is a very important composites play for the Dreamliner, which, of course, is built with composites, which happened to be the big hold-up to the construction. That could be right, given the pressure on the downside that the sell call generated.
I like BE Aerospace (BEAV) as a play on the seating of all new aircraft, and by the way, this is the stock that got upgraded when UBS downgraded Hexcel. I think both are buys.
Normally I would be suggesting Goodrich (GR), but United Technologies (UTX) obviously was thinking ahead with what looks to be a way too generous bid. That said, if the Dreamliner takes off, a dilutive acquisition for 2012 might turn out to be a terrific acquisition in 2013.
And of course, there are the conglomerate plays. Honeywell (HON) has been crushed here, and the Dreamliner is important to forward earnings and to the company's five-year plan. I think it can be bought, but not just because of the Dreamliner.
General Electric (GE) needs the Dreamliner, but it is more levered to the world's economic recovery, or lack thereof. And I would put Alcoa (AA) in the same place. While short-sellers don't like that these are not aluminum planes, they seem to forget that Alcoa has built up its fastener business, and those fasteners are used in abundance in the Dreamliner. Alcoa has been pummeled. Any good news has to help.
The Dreamliner is a big deal. How big? It even matters to the GDP, that's how big. And given the order profile, this production run could be an important keystone for all of these companies' future earnings. It's funny, the disappointment has been so traumatic for this company and its ship dates that it seems that people have given up on the component makers. That's where the bargains come in.