Boeing's Headed for a Rough Landing...

Don't Be Fooled By this Plane Maker

September 30, 2008

These days, Boeing (BA) is half plane manufacturer and half defense contractor. The latter part of Boeing's business has boosted the company's revenue in the last five years as airline sales slumped thanks to waning demand. But with the presidential election just a stone's throw away, defense stocks are facing downward pressure from investors who are concerned that the current economic crisis will ultimately lead to cuts in defense spending.

That said, airline deliveries are picking up speed, which means that Boeing has some tremendous growth opportunities on the horizon. But in the short term, the company is under pressure to cut costs and create more efficient business operations.

One of Boeing's largest undertakings is the creation of the super-lightweight 787 Dreamliner. But delivery of this plane is already 15 months late! Not only does this push revenue into later years, but Boeing faces expensive penalties every time it extends the production schedule.

Meanwhile, the company's employees are worried about job security and went on strike despite an offer of an 11% pay increase over three years. The strike is further curtailing production and costing the company upward of $100 million a day in lost revenue.

Yikes!

The bottom line is that Boeing is operating in a constrained environment, trying to sell new models to an industry that's been badly bruised by soaring oil prices, slowing economies and major spending cuts at the Wall Street institutions that finance plane companies.

Part of Boeing's strategy to combat these pressures and to cut costs has been to outsource supplies and parts of the production process. But in doing so, the company has missed several significant deadlines.

While I don't think Boeing is a company that will crash and burn, it's due in for a hard landing, at least until the overall economy gives us a clear signal that it is turning around.

In the short term, however, I cannot stand behind the commercial plane manufacturer because its fundamental strength has deteriorated significantly in past 12 months. A year ago, PortfolioGrader Pro, my stock ranking tool, gave Boeing an A-grade. Today—and for the last four months—it's a D-grade stock. These are not the kinds of companies you should be investing in when the market is so fragile and narrow.

If you're not sure which stocks have solid fundamentals, just plug the ticker symbols into PortfolioGrader Pro and see how they rate!

Do you own Boeing? Would you buy it in this current environment? Send us your comments!