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Why Boeing Missed the Rally in 2021

By Lou Whiteman – Jan 6, 2022 at 12:47PM

Key Points

  • Boeing rallied in the early part of the year on hopes vaccines would lead to a travel recovery, but coronavirus variants put a damper on the enthusiasm.
  • With airlines stable and the 737 MAX back in service, things are looking much better for Boeing now than they did a year ago.
  • But there isn't a clear catalyst on the horizon to get investors excited about buying in.

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The worst is over, but there wasn't much to get excited about in 2021.

What happened

Boeing (BA -0.19%) was stuck on the tarmac in 2021 even as the broader markets shot higher. Shares of the aerospace giant fell nearly 6% for the year, according to data provided by S&P Global Market Intelligence, underperforming the S&P 500 by more than 30 percentage points.

BA Chart

Boeing data by YCharts.

So what

The issues that plagued Boeing in 2021 began well before that year. The company's highly anticipated 737 MAX was grounded for 18 months beginning in March 2019 after a pair of fatal accidents. The grounding was a major black eye for the company that led to questions about its leadership and safety culture that are still lingering to this day, and cost it significant sales and cash flow.

A Boeing 787 Dreamliner in flight.

Image source: Boeing.

By the time the MAX was airborne again in late 2020, the pandemic was in full swing and airlines were in survival mode. Although Boeing has a large defense business, it is reliant on commercial aviation for more than half of its revenue, and the slowdown in aviation took a bite out of new plane orders.

Heading into 2021, the expectation was that the worst was behind Boeing on both fronts, and indeed, early in the year the stock outperformed the broader index as part of the post-vaccine "reopening rally." But new coronavirus variants showed that there would be no quick recovery, and Boeing's new plane sales remained anemic as airlines focused on repairing their balance sheets instead of committing to expensive new equipment orders.

The company is also dealing with engineering issues with some of its other commercial airplanes, including its 787 Dreamliner and a new version of its 777. While it does seem likely that Boeing has bottomed out, the company did not provide investors with much reason to get excited about buying in as the year dragged on.

Now what

Boeing scored a major win in the opening days of 2022, announcing a 50-plane 737 MAX order from Allegiant Travel Co. The stock got a slight boost, up 5% for the year as of this writing, but Allegiant is known for being among the most price-sensitive plane buyers in the world, and the order can be viewed as much as a sign of how much Boeing has to discount right now as it is a major victory for the manufacturer.

It's a tough time to be a Boeing investor. Global travel demand is expected to increase significantly over the coming decades, and Boeing -- thanks to its duopoly with Airbus -- should win ample orders for years to come. But with the pandemic still lingering and airlines taking a conservative approach to capital allocation, there isn't an obvious near-term catalyst to get the stock moving higher.

Add in Pentagon uncertainty that has caused a number of defense stocks to lag, and Boeing could remain in the doldrums in 2022 as well.

Lou Whiteman 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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