While the markets have had a great year in 2013 -- the Dow Jones Industrial Average (DJINDICES: ^DJI ) has breezed past prior record highs again and again -- the year is winding to a close. It's time to close the books on the Dow's great run this past year and look ahead to 2014. What will be the big stories of the new year, and how will the Dow's member stocks perform after such a banner year?
Boeing's (NYSE: BA ) been one of the top stocks on the index in 2013, but the future could be even brighter for this aerospace giant. Commercial aerospace demand is soaring, but will defense budget cuts crimp Boeing's stock growth in 2014?
Boeing's new boom
Boeing certainly has a rosy outlook for the future of the commercial airline market. The company projected in its most recet quarterly report that airline passenger and cargo traffic will pick up by 5% annually. Boeing estimated in its most recent market outlook that airplane demand could hit up to $4.8 trillion in the years between 2012 and 2032 -- a great sign for this aerospace leader in the long term. But how will that all play out in 2014?
The improving economy should help push aerospace demand and traffic, Boeing notes. With the U.S. economy having recovered enough for the Federal Reserve to announce a tapering of quantitative easing and China focusing on sustainable long-term growth, the world's two largest economies seem to be on strong economic paths for the years ahead. Boeing has done a masterful job racking up new orders and growing its commercial backlog this year -- the firm's commercial contractual backlog jumped 8.5% between the end of last year and the first nine months of 2013 -- and higher air traffic next year should only see more new orders and a growing backlog for Boeing.
Taking a look at Boeing's individual aircraft, 2014 should be a big year for the 787 Dreamliner. The aircraft has been on a roll since Boeing first took orders for its flagship plane: The 787 racked up its 1,000th order in November after nine years on the market -- considerably less time than its predecessor, the 777, took to reach that mark. With the fleet-grounding drama that slammed the 787's reputation this year now in the past, expect the recent surge in demand for the 787 to continue into the new year.
Despite the 787's growing momentum, it will likely be the reliable 737 line of aircraft that powers Boeing's new year -- and beyond. The 737 MAX has been a solid contributor to Boeing's cash machine lately. Boeing expects about 70% of new aircraft deliveries between 2012 and 2032 to be single-aisle aircraft, given the rise of new markets like China and the ascent of budget airlines. And, as one of Boeing's top products, the 737 should maintain its dominance in that market.
Budget restraints ease up, but competition stiffens
The forecast looks sunny for Boeing's commercial aerospace division, but how can the company's defense and space systems branch hold up in 2014?
The Pentagon will still have to confront daunting budget cuts in its future, but it won a reprieve when Washington approved a budget deal this month that will ease sequestration's effects in the new year. The resulting plan will allow about $500 billion in budget authority for the Department of Defense next year. That won't help Boeing dramatically -- much of the Pentagon's spending outlays in 2014 are already locked in, and the Department of Defense's budget authority heavily influences future spending and outlays. However, it's a sign that Boeing will be able to count on more flexibility from the Pentagon than it could have under original budget cuts.
Still, Boeing's defense and space segment has become a smaller chunk of its total business throughout 2013, and that's a trend that should continue in 2013, given the growth of the commercial airline market. Boeing's defense and space contractual backlog shrank by nearly 10% from the end of last year through the first nine months of 2013, and revenue hasn't grown anywhere near as quickly as commercial revenue. Expect more sluggishness out of this segment in 2014, but don't expect that to hinder Boeing's overall performance too much.
Boeing investors also need to keep a close eye on the competition. Lockheed-Martin (NYSE: LMT ) is Boeing's closest competitor in the defense segment, and it won a big victory over Boeing in November when South Korea's military brass announced that it would purchase Lockheed's F-35 fighter for its air forces -- even after Boeing's own F-15 was the only craft to meet cost criteria in a recent contest worth up to $7.7 billion. The F-35 is gaining steam despite its cost overruns and other problems, and Lockheed is pushing hard to command an increasing share of the Pentagon's budget.
No turbulence expected in 2014
Despite tough competition and budget cuts in the defense sector, Boeing looks set to fly still higher in 2014. Boeing might not repeat the ridiculous 77% year-to-date gains it has pulled down in 2013, but have no fear: There are clear skies ahead for this company.
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