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Boeing's Strength is Set to Continue Despite Q4 Loss

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Price Action Versus News

A stock’s price action following an earnings report is often seen as more telling than the report itself because it illustrates the market’s reaction to and interpretation of the company’s performance. Earnings releases are involved and tough to depict because management can manipulate the results. On the contrary, the market’s move following an earnings report represents real dollars being put to work and indicates investor interpretation of the report. Looking at the numbers alone can result in bias, discount investor reactions to guidance, analyst expectations, industry trends, and general market conditions.

Stanley Druckenmiller is one of the greatest investors of his generation, if not the greatest. Over four decades of investing, Druckenmiller has achieved returns that have compounded at more than 30% annually and has never recorded a down year. Druckenmiller describes his investing philosophy: “A big part of my process is taking signals from markets. I’ve always believed that markets are smarter than I am. They send out a message and if I listen to them properly, no matter how powerful my thesis, if they’re screaming something else, it’s telling me you’ve got to re-evaluate.” In other words, price action, the market’s reaction to news, and flexibility are paramount.

Boeing Q4 EPS Review

Boeing (BA - Free Report) is the largest aerospace company on the planet and one of the most successful companies over the past 50 years. The company is involved in various business segments, including defense (providing military aircraft), commercial airplane production, and aerospace contract work for the National Aeronautics and Space Administration (NASA). Despite the company’s long history of success, the past five years have been tough. Two deadly crashes in Boeing’s latest commercial, the 737 Max jet, have plagued the company:

·      The company’s reputation was tarnished.

·      The crashes led to a long setback in figuring out the root cause of the issue.

·      A plunge in airplane demand due to the pandemic furthered the airplane manufacturer’s woes.

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In recent months, Boeing has displayed its resiliency as a company despite its back being up against the wall. Boeing diagnosed the issue with the 737 Max (software-related) in 2020 and by the end of the year was able to get the plane re-certified. Also, the company has weathered the unforeseen storm from the pandemic. Last week, we reported that airlines like United Airlines (UAL - Free Report) and Delta Airlines (DAL - Free Report) are seeing demand for flights recover entirely from the COVID-19-induced swoon.

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Wednesday morning, Boeing, the largest constituent in the Dow Jones Industrial Average, reported fourth-quarter earnings that missed expectations. Production costs and supply-chain issues led to a loss of $663 million.

Gloomy Headlines but Resilient Price action

Despite the miss, investors were reluctant to sell off the stock on Wednesday, even after the monstrous run so far in 2023. Investors are betting that the worst is behind the stock. One bright spot in Boeing’s earnings report was revenue, which rose 35% to nearly $20 billion for the quarter. Another overlooked positive is the company’s growing hoard of cash. Boeing’s net cash/market cap ratio is nearing highs last seen before the pandemic.

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Industry group peers such as Lockheed Martin (LMT - Free Report) and Rocket Lab USA (RKLB - Free Report) are also picking up steam. Lockheed Martin bucked the market trend and rose Wednesday after reporting earnings. Meanwhile, Rocket Lab successfully launched a trio of satellites to orbit in space. The stock is trying to capture its 200-day moving average.

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Based on Boeing’s price action recently, investors are making a clear bet that the worst is behind the company and overlooking the negative headlines about its Q4 loss. Aircraft demand is rising, supply chain issues are getting resolved, and the company is returning to profitability. Look for continued strength in this aerospace giant.

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