The much-awaited re-launch of Boeing Co.’s (NYSE:BA) 737-Max is upon us.
This is a plane that has dominated headlines since October 2018’s devastating crash.
And now, over two years later, American Airlines Group Inc. (Nasdaq:AAL) is set to be the first company to return the plane to commercial service in the U.S., followed by Southwest Airlines Co. (NYSE:LUV) and United Airlines Holdings Inc. (Nasdaq:UAL).
Today, the stock is still over 100% lower than its all-time high of $440, set in March 2019.
Your gut reaction may be to step in now and buy the stock at this current level. But this is where I want to talk about the important difference between “investing” and “trading.”
BA investors have had a rough go the past couple of years. As I just stated, the stock has fallen over 100% since the start of 2019. And zooming in closer, to the past month, things don’t look much better. It’s fallen more than 8% since early December.
Traders, however, have had a great run in the stock over the last month or so – which, believe it or not, is a big factor contributing to BA
‘s fast December drop.
See, when traders are moving, so is the stock they’re trading. This leaves the obvious question…
Is Boeing a good stock for investors right now?
I have the answer right here…
How to Invest in Boeing Long-Term
The difference between traders and investors really comes down to one word: time.
Investors often buy and hold a stock for years. That’s where the term “value investing” originates. They buy the stock when it is “on sale” and are willing to hold until it reaches a better price.
Traders usually operate in shorter timeframes and are more interested in the quick gains. Sure, they’ll stick around if a trend is friendly, but you can expect them to sell into the strength the moment that the trend shifts.
Let’s look at the last few years of Boeing’s activity from an investor’s perspective…
Looking at the long-term charts, Boeing was already in trouble before the incidents that resulted in the grounding of the 737-Max. That’s right, the stock slipped into a bear market trend in November of 2018, a full six months before the groundings. I’ve circled that event in red in the monthly chart below:
At that point, the grounding caused BA
shares to fall further, taking the stock to a low that was 80% less than its highs struck just a year before. While traders will be interested in trading some short swings in the stock’s price, BA
is more appropriate for the long-term investor after a plunge that deep.
Now, the simplest way that investors typically use to gauge “value” is to compare a stock’s price/earnings ratio (P/E Ratio) against the market. But when it comes to BA, there’s trouble with that approach. The company struck its dividend to $0.00 on March 20, 2020 to retain cashflow.
Here’s where the technicals step in to save the day. (Yes, even long-term investors should be using technical analysis.)
A look at the long-term monthly chart for BA shows staunch chart support at $140 (green line). This price support started forming in 2015 and 2016 when the same price was acting as resistance. The break above that price point turned the same level into price support in 2020.
There’s an important technical analysis lesson here: the market never forgets price levels.
Another technical point for the investors – volume over the last few months (circled in green) has remained strong, indicating that the stock remains “in play” with traders and mutual fund managers. This is an important factor in the stock’s ability to continue its comeback.
In addition to the stock’s technical support at $140, investors will want to focus on another key technical level: $255.
That price identifies the next technical challenge that BA faces – its 20-month moving average. This is the king-daddy of long-term trendlines. It serves as the line of demarcation between a bull and bear market for a stock.
Two monthly closes above $255 will get the long-term technicians into a buying mood, as the stock will have passed this technical test. This is where the professional fund managers and hedge funds will start increasing their buying interest, helping to drive your investment higher.
Of course, some fundamental catalysts will help the technical situation develop. Namely a successful re-launch, more orders for the 737-Max, and a return to the air for travelers – all things that the long-term investors should be willing to wait on given BA’s technical situation.
My recommendation? Buy and hold BA as it returns to its bullish trend and a price target of $300-plus.
And tomorrow, I’ll give you a great name for a trade… not an investment.