Last year was devastating for the stock market, consumer spending, home prices and construction, tight lending except for Federal bailouts and budget busts -- and oh yeah, the government announced that we were in a recession nine months after the fact. This year looks to be all about jobs, and the lack thereof.We are now getting a daily barrage of companies announcing job cuts as we enter the earnings season, one in which expectations are very low.
The Boeing Company (NYSE: BA) announced Friday: it will cut employment in its commercial aircraft division by 6.6%, or 4,500 workers. Most of the positions cut will be administrative, and production jobs are expected to remain virtually untouched as the company tries to work through its backlog of 3,700 orders. The company said it has hired cautiously in recent years, seeking to avoid the "boom and bust" employment typical of the industry. "We are taking prudent actions to make sure Boeing remains well positioned in today's difficult economic environment," said Scott Carson, CEO of Boeing Commercial Aviation.
Boeing stock opened this morning at $44.28 down about a buck in morning trading with the overall market. That's about 50% off its 52-week high of $88.29. It has a large backlog of orders for the twice delayed rollout of its highly touted Dreamliner.
Many are calling for a rally in the Dow Jones Industrial Average this year. They can call out until they are blue in the face, but until the profit picture changes for the better or at least looks like it will there will not be any rally. On the other hand Boeing is also a defense contractor and is paying around a 3.6% dividend yield that seems to be solid.
The steps Boeing is taking to cut costs is part of its attempt to "right size" itself so that it can maintain positive cashflow. While the airline industry has been in turmoil for most of the last decade, Boeing one of only two major players in the large consumer and defense aircraft industry has not been on the door steps of Congress begging for handouts.
The following charts indicate the last ten years of Boeing's stock meanderings compared to that of the Standard & Poor's 500. Note that you would have slept much better owning the index, but in the in end you would have had more money owning Boeing. On top of that the S&P would have provided only half the dividend.
The five year chart shows much the same thing. Those that bought in at the high point are certainly unhappy about it, but that would be true of all of us and most stocks.
Boeing is trading at a historically low P/E for a Dow stock around 8.5, trailing and forward looking meaning it may have found it's equilibrium and have much more upside than an index. It's Return on Equity is high and its price-to-sales is very low. Check it out for yourself
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I have owned BA in the past, I do not own it now.
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Reader Comments (Page 1 of 1)
4-11-2009 @ 9:36AM
James Van Aert said...
I think the minute that investing in equities becomes a psoitive idea, and people can conceptualize recovery Ba is going to be right out front in recovery alongside well run companies like Intel, Ford, and General electric...yes I said Ford!
Intel as an example is down 44% on an earnings drop extimate that doesn't fall as far.
Standard valuation concepts do not apply to this market, and stop losses are likely foolish considering the dow went from 7500 to 9000 and back to 8080 (today).
People leveraged their accounts to buy at 10 year highs when it's the low point that should be the "in" door.
Over the last few months I have had a stop win concept on my account...when it's up 15% I consider selling it.
I truly enjoyed your insightful article