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Is Boeing Out of the Woods Yet? Here Are 2 Things Investors Should Be Watching for

By Lou Whiteman - Jun 23, 2021 at 7:30AM

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Two things to look for that might trigger the next upswing.

Boeing (BA 0.31%) has been a tough stock to love over the last few years. The company's commercial business was rocked first by issues with the 737 MAX, which was grounded after a pair of fatal accidents, and then again by the pandemic and its impact on aviation.

With the MAX flying again and travel demand surging higher as vaccines are rolled out, investors are once again warming to Boeing. On this clip from Motley Fool Liverecorded on June 10, Fool.com contributor Lou Whiteman talks with Industry Focus host Nick Sciple about whether or not the worst is truly over for Boeing, and shares his thoughts on what investors should be looking for before buying in.

Nick Sciple: We mentioned right when we started off this segment how it has been going through a gauntlet for Boeing over the past couple of years. Do you think Boeing is out of the woods yet? What should investors be watching for?

Lou Whiteman: So I'll answer this in a few ways. The worst is over, and the worst has been over for a long time. But as you mentioned, greater scrutiny from lawmakers, greater scrutiny from the FAA right now too this year after what happened with the MAX. You've seen both the MAX and the Dreamliner, production shut down this year for various points for relatively minor issues or addressable issues where in years past, it might have been, keep it running and figure it out. FAA said, "No, you stop and you figure this out." That's going to take a while. It doesn't really stop the business but that's a crimp on the business. But I think the worst is over. I wonder how long it will take to really see the up cycle. I will give you two things that I think you should be looking for right now that are really going to be in my mind, the green light, it's a go sign.

First of all, China still hasn't recertified the MAX. That is a regulatory thing with the plane but it's geopolitical and what's been going on between China and the United States over the last, how many years? This is a huge piece of leverage they have. I've seen some reports... it feels like constantly now. I've been seeing it's any day now or in the next few weeks, we're going to see China giving the green light. I've been seeing that since the end of last year. I have no idea when that's going to happen. My sense is that China likes having this leverage and look, China represents maybe 40% of the global potential order book for narrow bodies like 737. This is a huge deal and it really does impact Boeing so I want to see that resolved before we get too excited.

Second thing and the real big, the next big up cycle, I think is going to be in these widebodies. Whether it's a 787, the new 777X which they can't move right now if they try. These are the international planes, the two aisles down the middle when you're flying international. More than 20% of the global fleet, possibly 25% is over 20 years old. These are not fuel-efficient but they're very expensive. Right now in this market, there's no real hurry to get rid of them. When airlines feel confident, and when their balance sheets are ready post-COVID, and when they see that demand, you are going to see a flood of orders, I think for widebodies. It might be the second half of this decade, it could be sooner or it could be into the 2030s but it will happen. That is probably the catalyst for the next big up cycle in commercial aerospace. Maybe it's too late to climb on board by the end if it takes too long because people have been warming to the stock. But I think people do underestimate how long... We've had such an extended up cycle last time around, I don't think it's a given that the next one starts anytime soon. Reading the tea leaves on widebody demand, reading what the airlines want, I think is a pretty good thing to watch in terms of getting a feel for when things really heat up again.

Lou Whiteman has no position in any of the stocks mentioned. Nick Sciple has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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