Dear Mr. Berko: I’m considering the purchase of 500 shares of Boeing. I owned the stock in 2010 when it traded at $60 but sold it in April 2013 at $88 and took a nice profit, making a handsome 30 percent. Now I see Boeing at $136, and I’m kicking myself. I think I’d like to buy the stock again and would appreciate your thoughts. My 93-year-old aeronautical engineer father, who has accumulated enough frequent flier miles traveling on 707s and 747s to own one of Boeing’s planes, believes the stock will run to $200 in his lifetime. Please advise me.
— GA, Indianapolis
Dear GA: Boeing (BA), now trading at $121, makes the 707, the 717, the 727, the 737, the 747, the 757, the 767, the 777, the 787 and the new 797, which is its 1,006-passenger airliner. By making slight changes in seat configuration and eliminating two lavatories in coach class, American, Delta and United will be able to increase seating capacity to 1,352. Now I believe there’s an 807 on the drawing board to carry 1,750 passengers and powered by a nuclear engine. It seems the lucky number 7 is lucky for Boeing.
In addition to commercial passenger aircraft, this $90 billion-revenue company with 169,007 employees is hugely involved in the research, design, development, production, modification and sales of hundreds of billions of dollars’ worth of various missiles, defense and intelligence systems, warfare electronics, training systems, manned and unmanned military aircraft, and weapons systems for global strike and surveillance and engagement activities. During the past decade, BA’s revenues have nearly doubled; earnings have grown fivefold (Oppenheimer predicts $6.60 this year); and its dividend has tripled. This 99-year-old company has a backlog of $453 billion, which is about five years’ worth of future revenues. And those revenues are expected to rise about 8 percent annually. Meanwhile, improving profit margins could increase earnings even more, and the dividend should grow faster than both revenues and earnings. Credit Suisse, Reuters, Argus Research, Standard & Poor’s, Value Line, Merrill Lynch and UBS are bullish on Boeing, and the consensus suggests a stock price of $180 in the coming three to four years. Solid proof of this pudding is the 100-plus million shares of Boeing owned by Vanguard, BlackRock, State Street and T. Rowe Price.
Because I’m an optimist, I didn’t like BA in 2004 when it traded at $56. I didn’t like BA in 2007 when it traded at $100 or in 2011 when it traded at $56 again. And I didn’t like BA last year at $140. I have always been gravely concerned that peace will break out all over; a peaceful turbulence might force BA shares to nosedive, causing investors to become airsick. Our economy can’t afford peace. Even with its tremendous backlog, if BA stopped producing F-15s, F/A-18s, CH-47s, AH-64s, C-17s, guided weapons systems and other big-boy toys, the dividend would be slashed, and the share price would collapse. However, I think your 93-year-old dad’s $200 price objective is right.
Military contracts are growing like wildflowers, and military margins are (including the delicious profits from intentional cost overruns) increasingly lucrative. So buy the stock, but place a good-till-canceled open-stop order at $101, which will give you a 3 percent yield. War is more profitable than peace, and fortunately, BA has many an influential congressman on its slush-rolls.
Because your 93-year-old dad has a mountain of frequent flier miles, here’s some advice you haven’t asked for.
Airlines are creating new rules to make it almost impossible to bequeath FFMs to heirs, contending that FFMs are not assets but rather “nontransferable perks.” Airlines make the rules, but there’s a way around them. When your dad passes (may he live to be 100 plus one year to repent), don’t notify the airlines. Keep a copy of your dad’s username and password so you can access the account for his miles and other benefits just as he would. The tickets can be issued in anyone’s name when the miles are redeemed. So buy the stock and have a good flight.
Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or firstname.lastname@example.org.