BERKO: Will Boeing soar or sour?
Friday, August 17, 2012 7:00 AM
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Dear Mr. Berko:
I bought 150 shares of Boeing this year at $66, and I think I may have made a mistake. I’m not sure if I should continue to own Boeing, and it’s nagging me. It was my original intention to buy several utility stocks that pay dividends, but at that time I thought Boeing would be a more attractive investment. Now I’m having second thoughts and would appreciate your opinion on Boeing and also a couple of recommendations for dividend-paying utility issues.
R.G., Durham, N.C.
You have a nice profit in The Boeing Co. (BA-$74.30) plus a few dividends, and I’m inclined to let another investor buy your shares. I came across a Reuters article published a few weeks ago about a company in Burnsville, Minn., Aircraft Demolition LLC, that has been chopping up 10-year-old Boeing 737s with at least 20 more years of flying life remaining on their wings. Aircraft Demolition owner Tim Zemanovic told Reuters that business has never been better, and he expects to double his volume in 2013.
Now why in the name of Caesar’s ghost would anyone want to scrap a Boeing 737 that in today’s market costs between $52 million and $85 million? Something smells like foul fish. And like the bubble in the housing market, some observers believe there’s a bubble forming in the commercial airline market. But one never knows there is a bubble until the thing bursts.
Recently Southwest Airlines Co. (LUV-$9.04) deferred deliveries of 36 shiny 737s it was to receive this November and next March, and Qantas (Australian), in June, told Airbus to delay delivery of its new A380s. Think of Avis placing orders for 10,000 new Buicks to be delivered in January 2013, then seven months later asking General Motors to delay delivery until 2014.
Last year, BA accepted an order for 460 737s from American Airlines. Now why would BA accept this order when even Donald Duck and Pluto could figure out that American was going to crash into bankruptcy six months later? There are 21 analysts who cover BA, 19 of whom rate BA as a solid buy, suggesting that earnings will improve significantly in 2013 and citing an impressive order backlog in the big billions. Though they may be right as riesling, BA shares leave a sour tang in the mouth like a copper penny on my tongue. And with the exception of some oil sheikdoms, I can’t imagine there’s enough important demand from other countries to justify owning the stock. Emergent and stiff competition from China, Brazil and Russia dampens my enthusiasm for BA, as well as the imminent possibility of a long, global recession.
BA looks rosy to most investment professionals, but I believe this picture is short-term. BA won’t crash, but I believe it will slowly founder over the coming dozen months. If you are reluctant to sell BA, consider purchasing insurance like a January 2013 $75 put option that gives you the ability to sell the stock at $75, even if the thing falls to $27.
Wow, and you chose Boeing over a couple of utility issues last year. Those picks are as disparate as cheese and chalk.
And the first utility I’ll recommend is Transmontaigne Partners LP (TLP-$36.15). TLP is not quite a utility but rather an integrated terminal, storage and transportation company that distributes light-refined petroleum products. Its 7.1 percent dividend (mostly nontaxable) ought to please you with modest increases. I’ll also recommend AT&T Inc. (T-$37.18), a telephone utility with a 4.7 percent dividend that appears to have consistent growth. And finally, Duke Energy Corp. (DUK-$68.09), after its recent merger with Florida Progress, may be the largest utility in the U.S. DUK’s $3.06 dividend yields 4.5 percent and should grow moderately for the foreseeable future.
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