Is Boeing the Perfect Stock?

Everyone would love to find the perfect stock. But will you ever really find a stock that gives you everything you could possibly want?

One thing's for sure: If you don't look, you'll never find truly great investments. So let's first take a look at what you'd want to see from a perfect stock and then decide whether Boeing (NYSE: BA  ) fits the bill.

The quest for perfection
When you're looking for great stocks, you have to do your due diligence. It's not enough to rely on a single measure, because a stock that looks great based on one factor may turn out to be horrible in other ways. The best stocks, however, excel in many different areas, which all come together to make up a very attractive picture.

Some of the most basic yet important things to look for in a stock are:

  • Growth. Expanding businesses show healthy revenue growth. Although past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales don't mean anything if a company can't turn them into profits. Strong margins ensure that a company is able to turn revenue into profit.
  • Balance sheet. Debt-laden companies have banks and bondholders competing with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Companies need to be able to turn their resources into profitable business opportunities. Return on equity helps measure how well a company is finding those opportunities.
  • Valuation. You can't afford to pay too much for even the best companies. Earnings multiples are simple, but using normalized figures gives you a sense of how valuation fits into a longer-term context.
  • Dividends. Investors are demanding tangible proof of profits, and there's nothing more tangible than getting a check every three months. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Boeing.

Factor What We Want to See Actual Pass or Fail?
Growth 5-Year Annual Revenue Growth > 15% 4.0% fail
  1-Year Revenue Growth > 12% 6.2% fail
Margins Gross Margin > 35% 18.0% fail
  Net Margin > 15% 1.5% fail
Balance Sheet Debt to Equity < 50% 420.7% fail
  Current Ratio > 1.3 1.12 fail
Opportunities Return on Equity > 15% 63.3% pass
Valuation Normalized P/E < 20 50.45 fail
Dividends Current Yield > 2% 2.5% pass
  5-Year Dividend Growth > 10% 11.4% pass
       
  Total Score   3 out of 10

Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.

Boeing's score of 3 doesn't look particularly impressive, let alone perfect. As a big player in a capital-intensive industry, Boeing faces some challenges that make it difficult to score well by these measures.

On the commercial-aircraft front, Boeing has run into years-long delays with both its 747-8 and 787 models. As consolidation in the airline industry continues, with United Continental's (NYSE: UAL  ) merger now complete and Southwest (NYSE: LUV  ) poised to buy AirTran, concerns rise over whether Boeing will retain its market share. Even if Southwest seems likely to stay all-Boeing, others have turned to smaller jets from Embraer (NYSE: ERJ  ) for lower-traffic routes.

Meanwhile, Boeing's defense business remains vulnerable to the ever-present threat of government budget cuts. With far lower net margins and higher debt levels than competitors General Dynamics (NYSE: GD  ) and Lockheed Martin (NYSE: LMT  ) have, Boeing could be most vulnerable to any loss of business from the public sector. If that happens, even the company's attractive dividend -- which already exceeds its earnings over the past 12 months -- could potentially be at risk.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

Interested in reading more about Boeing? Add it to My Watchlist, which will find all of our Foolish analysis on this stock.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. General Dynamics is a Motley Fool Inside Value pick. Embraer and Southwest Airlines are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 11, 2010, at 8:03 PM, jdcoulte wrote:

    These articles are very interesting but make two huge fundamental mistakes:

    First, they rely entirely on historical information (other than the balance sheet numbers). Equity markets are forward looking, because, as an equity investor, you do not care what the company did in the past, only its current balance sheet and how much cash flow it is going to return to you in the future. For Boeing, the LTM 6/30 net income numbers happen to be trough earnings. If you look at predicted 2010 net income (based on consensus estimates), the P/E is only 17.8x. Also, for any company with substantial debt (Boeing doesn't have all that much at 3.5x debt/EBITDA but the point remains), EBITDA multiples are a much more consistent valuation methodology and normalize for the capital structure of the business. Admittedly, Boeing is still quite expensive on this basis, but it's much more valid for a capital-intensive business like Boeing

    Second, they utilize the same metrics for companies regardless of industry. I challenge you to find any capital-intensive business that has 15% growth (excluding small/micro cap companies of course). This doesn't mean these kinds of businesses are to be avoided because an investor should be willing to buy any company, provided the price is right. Walmart will never again have 15% growth (or even 5%...), but if you'll sell it to me for $30 a share, I'll take as much as you'll sell.

    My point is that you should have far more cautious language in an article such as this in order to better protect less sophisticated investors. Clearly tech stocks are going to look best by your metrics (high growth, no debt, etc.), but for a conservative investor, Boeing is probably a much better fit and a great defensive stock to help hedge a portfolio. Additionally it has massive international exposure, which investors should value highly since it gives them leverage to a weakening dollar. I understand how the article title will drive more readers, but think the analysis should be far more balanced and should compare stocks to others in their industry/size/characteristics rather than arbitrary metrics, all of which are backward-looking.

  • Report this Comment On October 14, 2010, at 1:00 PM, tomd728 wrote:

    JD........spot on !

    Tom

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