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Boeing’s Recent Sell-Off Could Mark a Buying Opportunity


Dec. 27 2018, Updated 5:27 p.m. ET

Broader market sell-off

Stocks have fallen significantly this month so far due to a broader market sell-off. The three major US indices—the Dow Jones, NASDAQ, and S&P 500—have lost 14.7%, 15.5%, and 14.8% of their respective value. Trade war uncertainties, weak Chinese economic data, global slowdown worries, and an interest rate hike by the Fed led to the broader market sell-off in December.

The broader market sell-off hasn’t spared high-growth and fundamentally strong companies. Generally, in a market pullback environment, most investors sell their holdings. However, we believe investors should take advantage of the sell-off by investing in fundamentally strong and high-dividend-paying stocks. The decline in share prices should make their valuations cheaper, providing investors an opportunity to maximize their returns.

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Boeing worth a look

One such stock, in our view, is The Boeing Company (BA), which meets both parameters. The stock has lost more than 15% of its value this month. On December 24, the stock broke its previous 52-week low of $294.65 and closed at its new 52-week low of $294.16. Boeing shares are now down over 25% from their 52-week high of $394.28 on October 3.

The recent plunge in Boeing’s stock price has made its valuation cheaper. At current market prices, the stock is trading at a TTM (trailing-twelve-month) PE multiple of 21.61x, which is significantly lower than the 25.20x it traded at the end of 2017 and near the five-year average of 21.11x. The stock also trades at a significant discount to the defense industry’s average PE ratio of 26.97x.

The lower PE multiple came despite an almost flat share price appreciation in Boeing’s stock year-to-date, suggesting that the company is generating higher earnings than last year, which hasn’t reflected in this year’s share price movement.

However, Boeing trades at a premium compared with its top peers (ITA). Lockheed Martin (LMT), General Dynamics (GD), and Raytheon (RTN) currently have TTM PE multiples of 14.14x, 13.56x, and 15.86x, respectively.

We believe Boeing’s premium valuation to its peers is justified, given its double-digit earnings growth expectations, improving cash flows, rising order book, strong balance sheet, and increasing shareholder return policy. We’ll discuss these factors in detail in the next part of this series.


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