Boeing Flaps Its Arms for Take-Off

The ugly truth of investing is that your returns will sometimes be determined by how well you guess. Does that sound frightening? It should. No one picks stocks with a crystal ball in hand, and no guess is ever 100% reliable. That's why value investors tend to ignore rosy predictions when assessing companies.

Don't count recent Boeing (NYSE: BA  ) owners among the value crowd. The stock has been trading near its annual high, thanks in large part to the presumed impact of troubles at Airbus, record passenger loads among airlines, and a generally pleasant environment for defense contractors. And now -- voila! -- you can add rosy predictions to the list.

On Wednesday, Boeing upwardly revised its 20-year revenue forecast from global aircraft sales by $500 billion. Yes, you read that correctly. Management believes that plane makers will deliver 25,700 commercial jets through the end of 2025, resulting in total sales of $2.6 trillion, up from its $2.1 trillion prediction last year.

Before you laugh, realize that Boeing's forecast is based on sound logic. Indeed, the company's head of marketing, Randy Baseler, told Bloomberg that higher oil prices will continue to drive demand, and that carriers will be forced to respond by upgrading to a more fuel-efficient fleet. Moreover, deregulation throughout Asia -- especially India and China -- should result in the region accounting for 36% of sales.

Boeing has published its industry market analysis for 40 years. How accurate has it been previously? No statistics were available in Boeing's press announcement, and calls for comment weren't returned by press time. Nonetheless, I have my doubts that this amounts to more than arm-waving.

Why? Researcher Philip Tetlock found that so-called pundits were often no better than the rest of the crowd when making long-term predictions. His book -- Expert Political Judgment: How Good Is It? How Can We Know? -- spells out detailed statistical analyses whereby the experts were often far off with their assessments, despite very sound reasoning.

Political pundits aren't often stock-pickers, of course. But investors shouldn't ignore the results of Tetlock's work. After all, if long-term projections are generally worthless, why assign them even a modicum of value in stock research? Instead, ignore the arm-waving; assess management, discount cash flows, research the competition, and then, if you're still interested in Boeing, realize that the fair value of wishful thinking is zero.

Here's a look at where things currently stand.

Boeing

Vital stats

Recent Price:

$79.86

Market Cap:

$63.85 billion

52-Week High/Low:

$89.58/$62.01

Related companies:

Embraer (NYSE: ERJ  )
Lockheed Martin (NYSE: LMT  )
Northrop Grumman (NYSE: NOC  )
Raytheon (NYSE: RTN  )
General Dynamics (NYSE: GD  )



Embraer is aMotley Fool Stock Advisorrecommendation. See what other stocks Tom and David Gardner have recommended by taking Stock Advisor for a free, 30-day trial.

Fool contributor Tim Beyers is still looking for a workable crystal ball. Let him know if you find one. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out which stocks he owns by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.


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