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Why Boeing Is a Stock to Avoid

By Jason Hall - Dec 11, 2020 at 6:03AM

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Boeing still has a lot of problems, and it's last in line to profit from a recovery in air travel.

With the expected deployment of coronavirus vaccines in the early stages, the global travel industry is knocking on the door of the beginnings of a recovery. Yet Boeing ( BA 1.05% ) shares are still down more than 30% from their 2020 highs, and almost 50% below the all-time high, reached prior to the accidents involving its 737 MAX jets. 

The 737 MAX has now returned to service, and air travel is set to return to normal, possibly within the next six months. Does this represent an opportunity for investors to buy? 

On the Dec. 4 edition of "The Wrap" on Motley Fool Live, host Jason Hall discusses Boeing with Motley Fool Bureau Chief Nick Sciple, including the ongoing issues within the company that have impacted its business over the past year and could have a lasting affect. They also discuss the likelihood that Boeing will be one of the last companies to benefit from an air travel recovery, as the coronavirus pandemic has shifted the industry's growth prospects many years further into the future. 

Transcript: 

Jason Hall: Nick, has Boeing been on your radar lately?

Nick Sciple: No, So we've talked about Boeing, Lou Whiteman and I have talked about Boeing several times on the podcasts this year obviously has been in the news a lot since the 737 MAX crashes. I believe that was 2018 when those crashes first happened but it maybe 2019.

Then of course, there has been continued issues with them. I think I put Boeing and the "too hard" pile just to go up with what Danny just said. For me. You see, it's one of these things where you see the 737 MAX problem and then there's more and more problems that have emerged from the woodwork with the company. You see a similar pattern and like GE for example, Wells Fargo, a lot of these older companies. I will say when you look at the competitive positioning for Boeing, they're in a global duopoly, we aren't  going to stop flying over the long term, although there is some question about about how quickly demand recovers.

I do think one thing that is interesting is you look a year, year-and-a-half ago, Boeing, because there was so much demand for flights, really had lots of leverage over its buyers. Now you see  Southwest is squeezing Boeing on their 737 MAX deals. I believe Ryanair is getting a special deal from them now. The narrative has kind of changed with Boeing over the last year or so, I put it in the "too hard" pile just because of the cultural issues. It could work out, but too hard for me.

Jason Hall: To spin the real estate phrase this has certainly gone from a seller's market to a buyer's market. I think there's implications, a lot of implications for Boeing there. 

There's a reason Boeing stock is still down about 47%, Airbus the stock is down 25%, right? That problem is, structural issues in Boeing's business, cultural issues in Boeing's business became more and more apparent, right?  I think there's there's little doubt that you look out five or 10 years from now and Boeing's probably going to be OK;  I don't think it's any real risk of financial failure, of insolvency.

But here's the thing, this isn't Marriott or Ryman Hospitality Properties or some real estate company that's dealing with temporary problems that should recover very very quickly in the second half of next year, right? In the fourth quarter of next year. When people can get in their car and they can drive to a town three or four hours away and stay in a hotel for a weekend trip away or something like that. Or businesses start doing corporate events and that kind of thing. And they're doing big conventions and that sort of thing.

The airline industry is going to take several years to recover when it comes to the capital deployment. The bottom line is that the industry has just kind of hit the reset button on a lot of its growth. Sure, it's going to get back to where it was within, a year or two I think. Once we get to next summer and vaccines are widely available and start getting deployed around the world. I think you can say two years from there that airline industry will have been mostly recovered.

Guess what? They've already got the planes for that, right? I mean, they don't have to buy new planes just to get there, right? There's a lot of idled assets that-.

Danny Vena: They've got to get people to fly in them.

Jason Hall: Yeah. So the bottom line is for a company like Boeing there, the last benefit from a full recovery, right? Because all this has done is this is delayed all of the growth, which is what the thesis for Boeing has been.

Sure I think it's a fine company. I think they've made a lot of progress but it just seems like there's so many other investments that are better than anchoring on, that it's going to return to where it was. I don't think the stock necessarily it's going to immediately go back to where it was a year-and-a-half or two years ago. I think there's just there's other places that you can do better in great businesses dealing with temporary problems versus the all of the things that make Boeing not a great business right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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