Boeing May Be a Bargain Buy - Here’s Why

Boeing is getting crushed but does that make the stock a buy? Let's take a closer look at the shares of the aerospace giant.
Author:
Publish date:

There seems to be no bottom in sight for Boeing  (BA) - Get Report shares. At the low on Wednesday, shares were down more than 21% at $98.

The decline took out Tuesday’s low, after shares fell to $101.25 before rebounding higher and closing north of $124. This week's action comes as the Volatility Index VIX is north of 70, and as investors worry about Boeing’s financials.

When buzzwords like “recession” and “bailout” are being tossed around, equities are bound to suffer - particularly when a stock like Boeing is on the receiving end of the bailout talks. Boeing’s dividend is now on watch for a cut, while its credit rating was recently lowered. The company confirmed it drew down the entirety of its $13.8 billion loan, while reports suggested the company has asked for plenty of federal aid to get by.

The timing couldn’t be worse for Boeing as it limps through a costly situation with its 737 MAX problems. A near-freezing in the travel industry has left the airlines in a precarious place, causing even more concern for Boeing’s orders.

However, one could argue that Boeing is in the “too big to fail” category. It’s not necessarily JPMorgan Chase  (JPM) - Get Report, but the government was willing to bail out the auto industry during the last recession. Plus, President Trump has indicated that letting the airline and cruise industries fail is not something the government will let happen.

Even more so, Boeing is a defense contractor, and a big one at that. From a military perspective, it’s unlikely the federal government will let Boeing go under.

JPMorgan is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells JPM? Learn more now.

Trading Boeing

Weekly chart of Boeing stock. 

Weekly chart of Boeing stock. 

Several points must be stressed. First, just because Boeing stock will likely receive government assistance does not mean it has hit rock bottom. Second, just because shares are down considerably doesn't make Boeing a no-brainer, risk-less asset.

These are difficult times and until we get an improvement in the Covid-19 situation, the market will likely remain volatile.

For Boeing specifically, the stock has cratered from $320 four weeks ago to sub-$100. Those who believe in the long case for Boeing can consider initiating a position in the stock down near $100. When I say “initiate” I do not mean go all-in and bank on hope.

Instead, nibble at the position and realize that $50 isn’t out of the equation, given the amount of volatility and unknowns that are present. This is one of those, “buy and throw in the top drawer” kind of stocks - again, if you think Boeing will be a solid long-term hold. 

Boeing is not without risks and is not for the timid. However, it’s hard to imagine the government letting the company fail. Down 75% from the highs, it may be something to consider for speculative investors.