Boeing Breaks to Higher Altitude
The Dow Industrials lifted off and blew above 20,000 on Wednesday, January 25, in part helped by strong chart moves by Boeing Co (NYSE:BA), as BA stock traded at a record $170.00.
The bullish breakout by BA stock indicates there are more gains to come. Boeing stock is up an impressive 70% from its low in February 2016 and up 8.4% year-to-date, easily outperforming the S&P 500 and Dow.
While there are concerns BA stock has moved up too quickly, the chart indicates there could be more to come. Plus, with a 3.54% dividend yield, there is some cushion.
A look at the Boeing stock chart shows the stock has been steadily trading above the upward-trending 50-day and 200-day moving averages in a golden cross.
Chart courtesy of StockCharts.com
BA stock was recently confined to a tight sideways accumulation channel with resistance at $160.00, which was broken. The breakout of Boeing stock was accompanied by strong relative strength and a new buy signal based on the Moving Average Convergence/Divergence (MACD) indicator.
The upward continuation of the breakout was driven by strong results in 2016, in which Boeing returned a record $10.50 billion in operating cash that was driven by cost management and the sale of 748 commercial planes.
My Bull Case for BA Stock
Boeing is bullish for this year due partly to the tailwind that is expected by the Trump administration’s desire for less regulation and driving corporate growth.
But there is a red herring in whether Boeing can achieve its target to deliver between 760 and 765 commercial planes this year.
First, Boeing’s ability to strictly control the cost side can be attributed to its global supply chain, where the company builds parts around the world and assembles them in the United States.
Yet, under the Trump administration’s demands to use U.S. parts and build in the country, it could prove a challenge to Boeing as it will have an impact on Boeing’s established global supply chain network.
The reality is that airline makers have been striving for ways to cut costs, and employing a global supply chain has been integral to this plan. How much the Trump administration’s demands will impact Boeing will be critical going forward as BA stock pushes towards $200.00.
Another really big issue that will arise that will surely bug President Trump will be the decision by Boeing to open up a new assembly plant in China to build some of its “737” planes, the first assembly plant outside of the United States.
Some will argue that Boeing shouldn’t pursue this China strategy, but the reality is that the company has to, with little option. To sell in the world’s biggest airplane market, Boeing really has no choice. Just ask the automakers with massive sales in China.
Boeing counts China as a major market. Based on the needs of the country going forward for planes, Boeing needs to have an assembly plant there or risk losing valuable orders to rival Airbus Group SE (EPA:AIR).
The bottom line is that if Boeing can convince President Trump it needs to maintain its global supply chain and open a plant in China, then the sky is the limit for BA stock to fly higher on the chart.