More News? Specifically... more bad news? The images on my local news broadcast were vivid. A burning jet engine. A large piece of that jet engine missing a home by a few feet. Who do you call when that happens? Or are you just happy that it did not land on you or someone you love? A United Airlines (UAL) 777-200 aircraft manufactured by Boeing (BA) had apparently suffered engine failure on takeoff from Denver on Saturday en route to Honolulu. Thankfully, the crew on board was indeed able to get the plane back on the ground in Denver with no one suffering injury.
So, you're telling me that after all that has happened with the 737-Max over the past two years, and after the FAA (Federal Aviation Administration) had issued an airworthiness directive requiring inspections for 222 Boeing 787 airliners just last week following reports of torn decompression panels in the belly of that aircraft, that now there might be a problem with a third Boeing model? The very same FAA has now ordered emergency inspections of all Boeing 777 aircraft equipped with PW4000 series engines manufactured by Pratt & Whitney, which is now a division of Raytheon Technologies (RTX) . FYI, the only U.S. carrier impacted by this order is United with a total of 52 aircraft so equipped, but only 24 currently in service. In addition, Japan's transport ministry grounded all such aircraft as well, impacting 13 777's operated by Japan Airlines (JAPSY), and 19 777's operated by ANA Holdings (ALNPY).
Why Are We Here?
Or, why were we here? The reopening trade, quite overtly. Should massed public behavior ever approach something closer to what we once called "normal", one would think that air travel recovers to some degree. Of course, business travel will recover very slowly as most large corporations have learned to do without the expense, but there are folks (with means) who will want to travel for leisure once they feel safe doing so. Problem with that is that not only do many carriers have as many if not more than half of their fleets in storage, but Boeing itself has hundreds of already built but still undelivered aircraft in inventory.
So... the firm, Boeing has told us that free cash flow does not dramatically improve until 2022, or maybe even 2023. I have been long Boeing since nearly the lows of last Autumn. I have been long Raytheon since shortly after the merger with United Technologies that resulted in the Otis Worldwide (OTIS) and Carrier Global (CARR) spin-offs. Even at this morning's prices, I have done nicely on both of those positions. RTX is not really that far off of the late November highs, but Boeing is well off of it's highs reached in early November. I stand up 30% in Boeing and 47% in Raytheon, but I had already written to you stating my eventual intention to swap out of RTX and back into old Sarge fave Lockheed Martin (LMT) . I just needed a catalyst. LMT has not exactly done well since reporting soft Q4 earnings with so-so guidance a month ago, but it really has not done well. I think I found my trigger. Put on your helmets
That gives me another idea. Old time Sarge super-fave Kratos Defense (KTOS) , the aerial drone/hypersonic warfare guys, rallied hard through February, but has sold off fairly hard over the past few days as traders take profits ahead of earnings due this Thursday afternoon. Hmm. Sure would like to get back in that name. Think modern warfare is going to move away from autonomous vehicles, or swarm robots or ultra high speed offense/defense? Yeah, me neither. Lockheed is pretty much a (the?) leader there as well. Let's rock.
FYI... I am writing this up ahead of taking action. That puts you, the reader ahead of me, the thought engine. Why? Because I like you. That, and I'm feeling quite full of awesomeness today.
Purchase one share of LMT for every five shares of RTX sold. This should create approximately $27.30 in cash per five shares of RTX sold.
Purchase seven shares of KTOS for every one share of BA sold. This should create approximately $2.76 in cash per share of BA sold.
Note: This is how you enforce portfolio allocation discipline upon yourself.
Optional: For every unit of output (Appx. $30.06) created through the successful implementation of these ratioed transactions... either buy your spouse something nice, or plow it into an existing banking position while they are slightly lower this morning. I'll be adding to Wells Fargo (WFC) , but that's just me.