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The Dow Bounces, But Why Are Boeing and United Technologies Falling?

By Dan Caplinger - Jul 9, 2014 at 11:00AM

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A good start to earnings season helped send the Dow higher, but even a big order couldn't help the Dow's aerospace contingent.

The Dow Jones Industrials ( ^DJI 0.00% ) began the official second-quarter earnings season on a positive note, celebrating a solid performance from the industrial sector as a sign of strength in the overall economy. As of 11 a.m. EDT, the Dow was up 37 points, with investors likely holding off on major commitments until after the Federal Reserve releases its latest meeting minutes this afternoon. Yet Boeing ( BA 1.43% ) and United Technologies ( RTX 1.49% ) posted modest losses today, despite news that most would typically interpret as being positive for the aerospace giant and one of its key suppliers.


Source: Boeing.

What made Boeing's 0.4% drop so surprising is that it came in the aftermath of receiving a massive $56 billion order for 150 of its 777X airplanes from Emirates. In addition to the agreement, Emirates will obtain further rights to purchase an additional 50 planes at its discretion. Still, investors have known that the deal was in the works since last November, and it's unclear whether Boeing negotiated lower prices for Emirates than the $56 billion figure would indicate. Moreover, with production not even scheduled to start on the aircraft for three years, the contract represents just another piece of Boeing's massive backlog of orders on multiple popular aircraft models. There's no denying that Boeing has the opportunity of a generation to produce trillions of dollars in potential revenue in the years to come, but the Dow component needs to improve its execution in order to take full advantage of that opportunity.

Source: United Technologies.

Meanwhile, United Technologies fell about half a percent. Earlier this week, the company noted that it would showcase many of its most advanced systems for aircraft, both commercial and military, at a U.K. airs how starting next week. Yet there's some concern about whether the key F-35 fighter jet will appear at that event, as the Pentagon grounded the entire fleet of F-35s after a fire in an engine built by United Tech's Pratt & Whitney division. The F-35 program has already been a subject of debate given its high price tag, with an estimated cost of nearly $400 billion, and some shareholders worry about the impact of negative publicity on United Technologies' role in the program.

Even though Boeing and United Technologies are falling today, it's important not to give a single day's moves too much weight. With so much opportunity in aerospace and broader areas, the two Dow components should weather the storm and give investors long-term success.

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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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$35,227.03 (0.00%) $0.00
The Boeing Company Stock Quote
The Boeing Company
BA
$208.83 (1.43%) $2.95
Raytheon Technologies Corporation Stock Quote
Raytheon Technologies Corporation
RTX
$85.01 (1.49%) $1.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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