Is Boeing a Buy? Why Boeing’s Contracts Could Spell Solid Earnings

As the stock market takes repeated dips, savvy investors are trying to find good buys. Boeing has traditionally been a cornerstone stock: it’s a stable business that has historically been able to invest enough in new technology and new controls to continue growing. And though the stock may be at its highest yet, it still has some room to grow.

Boeing is going to be increasing its production in 2019 significantly to meet market demand. If the perceived demand is correct, Boeing will have a large amount of profit on its hands. In particular, Boeing will be developing additional 737 jets: the company’s best-selling product. And while Boeing’s major competitor, Airbus, has been producing similar quantities of jets, the profit potential for Boeing is larger.

If Boeing can keep hold of its market share, its successes will only compound. Of course, in any industry, this is a big if: it really depends on whether there may be other, international players that may be able to step into the market. Aerospace engineering technology tends to be rather competition proof, as the barrier to entry into the market is so incredibly substantial.

In recent years, Boeing’s bottom line has been hindered by a loss of government contracts. While Boeing isn’t one of the companies that primarily depends on its government contracts, it’s been losing traction. 2019 is bringing Boeing more defense contracts, which should improve its revenue substantially. Moreover, if Boeing is able to capitalize on its momentum, it can both retain and build upon these contracts.

In addition to procuring new contracts in the defense market, Boeing is also using its momentum to aggressively grow its technology. New supersonic business jets are currently being explored that could radically change the face of business travel. As the world gets much smaller, the need for easy, fast transportation between countries becomes more important. These supersonic business jets could become mainstays of corporate operations, making it easier for principle members of companies to be allocated and deployed on-the-fly.

Despite some prolific contracts, international factors could still hurt the company. Many feared that Boeing would suffer due to the trade war, as the company requires large volumes of resources from China. However, Boeing also offers products to China, and it’s believed that China is more reliant upon Boeing’s technology than Boeing is reliant upon China’s resources. Consequently, fears of the trade war could be currently undervaluing Boeing’s stock, even as Boeing’s stock continues to rise. Boeing has been on a roll for the last few years; the stock price increases are not entirely unforeseen.

Large stock increases are a double-edged sword. Boeing’s stock surge has been primarily driven by fundamentals—and, as mentioned, it may still be undervalued due to the after effects of the US-China trade war. Boeing’s stock surges can be seen as a show of faith in the company, but skeptical investors may be inclined to think that it’s an artificial boost. Since 2017, Boeing’s stock price has been growing aggressively. From January 1st 2017 through January 1st 2019, Boeing stock increased from $155.68 to $327.08.

More skeptical analysts may believe that this indicates an overvaluation of Boeing’s stock over the past couple of years, and that the stock may be ready for a fall. However, there are solid reasons why Boeing’s stock doubled within the last couple of years. Boeing has been investing in aerospace engineering, pursuing government contracts, and further developing out its production strategies throughout.

It’s inarguable that Boeing is doing well, and it’s likely to build momentum through 2019. Investors may be wary of purchasing in as Boeing’s stock price climbs, but new contracts and new technology both pave the way for substantial growth. In prior years, Boeing has always been a strong stock, yielding fantastic dividends and remaining relatively stable during even more tumultuous times. Fears of stock market collapse or over-estimates of demand may be the only reason not to invest in this stock moving forward.

Regards,

Ethan Warrick
Editor
Wealth Authority

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