How to Play Boeing Stock Right Now
The Boeing Co. (NYSE:BA)’s stock has gotten a $26.6 billion buzzcut since Sunday’s 737 Max 8 crash, and more than a dozen countries have now ordered the jets taken out of service. What’s more, in a stunning about-face, President Trump has ordered all 737 Max 8 and 737 Max 9 grounded.
Millions of investors are wondering what to do next and you’re not alone if you’re one of ’em.
First, put things in perspective.
We’ve seen this playbook before…
- Nvidia Corp. (NasdaqGS:NVDA) got crushed when it cut guidance based on an inventory glut and slowing crypto-mania last November.
- Apple Inc. (NasdaqGS:AAPL) fell out of bed when the company announced that it would no longer provide iPhone data this past December.
- Visa Inc. (NYSE:V) got obliterated late last year when critics wondered if the payment giant was up to the challenge associated with digital payments in December.
I told you to put your fears aside and buy all three.
Nvidia has moved from a low of $124.46 on December 26, 2018 to $169.18 as I write, following news of a record, $6.9 billion all-cash buyout of Mellanox Technologies Ltd this past Monday. That’s a 35.93% move.
Apple has tacked on $41.20 per share since its low of $142.00, hit on January 3, 2019. Shares trade at $183.40 each as I’m typing, a 29.15% jump in ten weeks.
And, last but by no means least, Visa has moved from a low of $123 on December 31, 2018 to $153.33 where it’s trading right now as I gather my research. That’s a 24.66% gain in less than three months.
To be clear, I am NOT tooting my own horn.
I am simply pointing out that you don’t want to get too worked up about short-term disruptions that rocket across the Internet.
Protect Your Wealth: Buy the Trends
Chances are you and your money will be just fine if the company you are buying (or already own) lines up with one of more of the six Unstoppable Trends we follow and makes a “must-have” product or service the world cannot live without.
Boeing clearly meets both conditions; it’s one of two major haul airframe builders worldwide. You’re not talking, for example, about one of 27 car makers or dozens of computer manufacturers.
Second, Boeing is not going anywhere – pun absolutely intended. President Trump grounded all 737 Maxes while the company works to find the underlying reason for the crash, and he’s only one player of the major nations putting in this order. China, the United Kingdom, Singapore, Oman, India, Indonesia, Malaysia, and Australia have also grounded these aircrafts.
What you want to focus in on right now is the “how and why” associated with what’s happened.
Like I just mentioned, governments all over the world are banning the aircraft because they have to do so in the interest of appearing protective to their citizens. I don’t blame them one bit because an abundance of caution is clearly in order.
Transportation is one of those things where you cannot afford to take chances so you want to act proactively to get ahead of the situation rather than fail to act and fall behind what could be a material design flaw.
What Went Wrong with Boeing
Speaking of which, that’s the key here.
As I noted earlier this week on Varney & Co., Boeing stock will come roaring back if the investigation determines there is no material design flaw in the 737 MAX 8/9 airframe.
Software is, of course, a huge part of the problem, but that’s a different nut to crack, and a lot like a car recall. Boeing could ground the fleet, upgrade the software, and re-release the airframe.
The other thing is that foreign operators simply may not invest the time and energy needed to properly train pilots. U.S. pilots, according to reports I’m reading now, seem to have no problems adjusting to sensory input under similar situations and have the experience needed to quickly override the autopilot.
Personally speaking, I think Boeing screwed up when it comes to handling what’s happening.
The company could have, and should have, centered its response to what’s happening around safety – a key corporate value – rather than hiding behind its business expediency. But that’s just what I think, and a discussion for another time.
How to Play Boeing to Maximize Profits and Minimize Risks
What matters now is how you can set up for big profits ahead.
The 737 MAX 8 accounts for roughly 40% of Boeing’s revenue… which means you’ve still got 60% that isn’t. There’s value in that.
I suggest a simple yet effective approach using one of my favorite Total Wealth Tactics – the LowBall Order– to pick up shares at or below $350 per share.
Or sell near dated $350 Puts like the BA April 12, 2019 $350 Put (BA190412P00350000) which will result in a cool $900 credited to your account immediately for each option sold. That brings your entry price down to roughly $341 per share ($350 – $9 = $341 per share).
Selling options without owing the underlying stock can be seen as risky however, so I suggest selling one contract for every 100 shares you would own, and for which you have the cash needed already set aside.
Alternatively, consider Dollar-Cost Averaging in, meaning buying shares a little at a time every time it breaks into the “buy zone” that’s very clearly defined by support and resistance dating back to mid last year. Roughly speaking that’s $340 to $370 a share.
Alternatively, $350 a share is expensive. I get that.
Buying 100 shares will set you back a cool $35,000 so consider buying a $350 LEAP call like the BA January 15, 2021 $350 Calls (BA210115C00350000 every time BA shares trade at or just below $350 a share. That way you can control an equivalent 100 shares for just $69.17, an 80.2% savings.
Risk management is pretty simple in a situation like this one.
Consider using $340 a share as your “line in the sand,” If you bought into Boeing right now, at $375 per share. That’s a price point that would simultaneously keep losses contained to a manageable $35 share or roughly 9.3%.
At the end of the day, we know that Boeing is a fantastic company.
More importantly, we also know that companies like this can come roaring back far faster and far sooner than most investors expect (as is the case for Nvidia, Apple, and Visa which we talked about a few minutes ago).
Which is why “pre-boarding” may be just what your portfolio needs.
Until next time,