Ending the record-breaking 11-year bull market, Wall Street tumbled on Mar 11 in the aftermath of massive sell-offs as the World Health Organization declared the novel coronavirus outbreak (COVID-19) a pandemic. Evidently, all the major market indices tripped. The S&P 500 declined 4.97%, Nasdaq Composite lost 4.78% and the Dow Jones Industrial Average (DJI) fell 5.55%.
It is imperative to mention in this context that
Boeing ( BA - Free Report) remained the biggest drag for Dow Jones, losing more than 18% in the last trading session and causing the blue-chip index to shed almost 1,400 points in a single day. Why Did Boeing Plunge?
The significant share price fall that this U.S. jet maker suffered yesterday was the result of a
report published by Bloomberg, which declared that Boeing is planning to draw down the full amount of a $13.8 billion loan that it obtained last month. Notably, Boeing needed to deal with its cash burn as it prepares to return 737 Max plane to service.
However, the worldwide travel disruption that has been weighing on the aviation industry has forced Boeing to make the withdrawal.
Moreover, the cost to protect the company’s debt for one year in the credit default swaps market widened 141 basis points to 218 basis points, according to ICE Data Services. This must have also spooked Boeing investors, which was reflected in the double-digit stock price slump.
Is COVID-19 the Only Culprit?
The rapid spread of coronavirus disease, particularly outside China in the past few days, has made investors skeptical, thus impacting the majority of stocks. However, when it comes to Boeing, the story is not entirely the same.
Of course, the turmoil associated with coronavirus was the major reason for Boeing to withdraw the credit. However, it is also imperative to mention that the plane maker is in dire need of cash in hand, given the ongoing Max grounding, the company’s joint venture with Embraer (
ERJ - Free Report) and looming debt maturities.
Notably, at the onset of this month, the Federal Aviation Administration (FAA) formally rejected Boeing’s proposal, with regard to the return of its 737 Max to service, saying that wiring bundles in 737 Max jets are not compliant with the certification standards. No doubt, this rejection has once again increased investors’ concerns over the 737 Max program, which they earlier anticipated would return to service by June 2020. Now, with the coronavirus fear looming large, its return may take longer.
Stocks to Buy
Considering the aforementioned discussion, it is obvious that investors will remain skeptical about buying Boeing shares any time soon. This is further evident from its Zacks Rank #5 (Strong Sell).
However, this should not discourage investors from choosing defense stocks altogether. After all, there are some better-ranked stocks in this space, which boast solid growth prospects. Further, the fact that these companies have made no comments regarding any significant impact of the virus on their operational results makes them even more attractive. These stocks are:
Northrop Grumman ( NOC - Free Report) : This global security company supplies a broad array of products and services to the U.S. Department of Defense (DoD) including electronic systems, information technology, aircraft, space technology and systems integration services. Its earnings estimate for 2020 indicates 9.4% annual increase while that for 2021 indicates 13.3% rise. The company carries a Zacks Rank #2 (Buy). You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here L3Harris Technologies ( LHX - Free Report) : This is a technology-oriented aerospace and defense player delivering advanced defense and commercial technologies across air, land, sea, space and cyber domains. Its earnings estimate for 2020 indicates annual growth of 15.2%, while that for 2021 indicates 12.7% rise. The company carries a Zacks Rank #2. Leidos Holdings ( LDOS - Free Report) : This company provides solutions in the fields of cybersecurity; data analytics; enterprise IT modernization; operations and logistics; sensors, collection and phenomenology; software development and systems engineering. Its earnings estimate for 2020 indicates annual growth of 8.7% while that for 2021 indicates 15.4% rise. The company carries a Zacks Rank #2.
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