Boeing Shares Hit Turbulence After Fourth-Quarter Report

Boeing shares have been flying higher over the last year. However, has all the good news been priced in? Here's what long-term investors should keep in mind.

Jan 29, 2014 at 3:00PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

Despite emerging market concerns and a month of disappointing job growth here in the U.S., the Federal Reserve remains intent on pulling back its bond-buying stimulus. The central bank on Wednesday said it would cut monthly purchases of Treasuries and mortgage-backed securities by $5 billion each, which brings the monthly asset purchases down to $65 billion, after being trimmed in December to $75 billion from $85 billion. The Dow Jones Industrial Average (DJINDICES:^DJI) reacted with a more than 1% drop in midafternoon trading. In the long term, this tapering indicates Fed confidence in a strengthening economy. But in the short term, it also means the possibility of less cash making its way into equities markets. With that in mind, here are some companies making headlines today.

Shares of Boeing (NYSE:BA) have been soaring over the last year. However, today brought some turbulence for investors.

BA Chart

BA data by YCharts.

Despite Boeing beating Wall Street estimates during a strong fourth quarter, with revenue and net earnings per share respectively rising 7% and 26%, investors are selling and the stock is trading more than 6% lower. For the full-year 2013, the aircraft manufacturer posted revenue and net earnings increases of 6% and 18%, respectively. The sell-off appears to be coming from investors who were disappointed in the company's guidance for revenue to only increase 1%-2% in 2014. That said, here are a few things for long-term investors to keep in mind. 

First, in addition to Boeing generally posting conservative guidance to begin a new year, revenue could increase more than the initial guidance if the company can successfully ramp up aircraft production. Boeing delivered 601 airplanes in 2012 and then 648 last year. In 2014, Boeing plans to deliver 715-725 commercial airplanes, and if the company executes its faster production pace, it will help spur top-line revenue growth.

Second, Boeing's full-year revenue reached $86.6 billion in 2013 -- a number that is dwarfed by its massive backlog of customer orders that totals $441 billion. That is more than five times its 2013 revenue. This offers investors a very serious cushion of revenue for rough patches during the long haul.

Third, while 2014 might be slower for top- and bottom-line growth for Boeing, consider that air travel has consistently grown 1.5% faster than GDP and that the global commercial aircraft fleet is expected to double over the next two decades. That growth is the equivalent of 35,000 new airplanes valued at $4.8 trillion, according to Boeing.

Boeing also consistently returns value to shareholders through its dividend.

Graph by author. Information source:

Boeing has grown its dividend as the company works through its massive backlog of orders. A potential investment in Boeing isn't without risk, of course. Investors would be wise to keep an eye on its defense, space, and security business segment where revenue and profit are likely to be squeezed through the U.S. government's $1 trillion in defense budget cuts by 2021.

Outside of the Dow, automaker Chrysler Group reported an increase in earnings for the fourth quarter driven by the launch of its 2014 Jeep Cherokee. Chrysler posted a net income of $1.6 billion as revenue advanced 24% to $21.2 billion. Investors should note the net income increase was aided by a one-time tax gain of $962 million – although the figure is still a large improvement from netting $378 million during last year's quarter. 

Chrysler delivered more than 2.6 million vehicles last year, with its U.S. market share increasing 20 basis points to 11.6%. As you can see below, the automotive industry is having a strong rebound in the U.S., the region that drives most of profits for Detroit's Big Three car makers, which are increasingly becoming more profitable.

Graph by author. Information source: Automotive News DataCenter.

Investors in the automotive industry would be wise to freshen up on Chrysler Group's earnings and market share as the combined entity with Italian automaker Fiat will be going public on the NYSE in the future. 

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Daniel Miller has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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