Shares of Boeing (BA -3.39%) jumped 9% at the open and were up more than 4% as of noon Tuesday, rallying on positive news both concerning the economy and the COVID-19 pandemic.
A number of commercial aerospace suppliers were in rally mode as well, with Triumph Group (TGI -2.61%) up 8% as of midday and Heico (HEI 0.17%) up more than 2% after opening up 5%. These companies all count on commercial airlines for revenue, and positive developments concerning the pandemic and the health of the economy are key to the airlines' recovery.
The markets are rallying on Tuesday after the Federal Reserve broadened its campaign to keep the economy afloat during the pandemic, announcing it would expand its stimulus program to include purchasing individual corporate bonds. That, in theory, should make it easier for companies to remain liquid and make sure corporate spending does not shrink.
Investors were also encouraged by a top United Kingdom health official touting the results of a trial that found a common steroid drug effective in treating the coronavirus, calling it "the most important trial result so COVID-19 so far."
If so, that would be good news for the airlines. The industry has been hit hard by the pandemic, which has caused travel demand to plummet. The sooner the economy is healthy and travel demand returns, the sooner Boeing and its suppliers are likely to see an influx of new plane orders.
Airlines jumped higher on Tuesday on the news, and many of their key suppliers came along for the ride.
Investors need to be careful not to get ahead of themselves. By Boeing's admission, even if the pandemic is largely resolved this summer it is going to take years for the airlines to resume operations at pre-pandemic levels. Given the amount of debt the airlines have added to get through the crisis, it will likely be much longer before they aggressively commit to costly new Boeing planes.
Boeing has done a good job boosting its cash reserve and should have no problem surviving the slowdown, but given the number of challenges the company is facing, the stock is likely going to need time to fully recover what it has lost so far in 2020. Triumph, meanwhile, was vulnerable to running out of cash in a worst-case scenario for the industry, and in recent weeks has tended to have an oversized relief rally on indications that the worst case won't materialize.
Of the three stocks, Heico, thanks to its diverse revenue streams, looks like the top pick. Heico gets nearly half of its revenue from businesses outside of the commercial aerospace sector, and even its aerospace business figures to rebound faster than the overall market given the specific products it sells.