Sweet dreams for Boeing investorsSeptember 19, 2013: 11:23 AM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Hewlett-Packard is entering its final days as a component of the vaunted Dow Jones Industrial Average. HP will no longer be a Dow 30 member as of Monday.
But HP (HPQ), which ironically enough has been one of the hottest stocks in the Dow this year, has already lost another title. Up until recently, HP was the best performer in the Dow year-to-date. But that honor now belongs to, drum roll please ... Boeing (BA)!
Yes, Boeing. The same Boeing that has had numerous problems with overheating lithium-ion batteries in its brand new 787 Dreamliner jets this year.
The same Boeing whose stock finished the month of January down 2% (mainly due to concerns about the Dreamliner) even though the Dow was up nearly 6%.
And the same Boeing that received another round of bad press after a Boeing 777 plane operated by Asiana Airlines crashed upon landing at San Francisco's airport in July. That accident killed three people.
Yet Boeing's shares are up 57% in 2013. (HP's stock has gained 53%.) And unlike HP, Boeing is not merely bouncing back from years of trading at depressed levels. Boeing's stock is at an all-time high.
What gives? Boeing's meteoric rise is a perfect example of why long-term oriented investors sometimes need to filter out the noise. Bad press doesn't necessarily mean a bad stock.
Sure, headlines about flaming batteries and grounded planes are not exactly good news. But Boeing addressed the problems. And it's not as if major airlines rushed to cancel orders for the state-of-the-art 787s.
In addition, investors that were focusing solely on the Dreamliner woes were missing the bigger picture with Boeing. Boeing's commercial airplane unit, of which the 787 is just a small part for now, is doing extremely well. The division reported sales growth of nearly 7% in the first half of the year and a 16.5% increase in operating profits.
Boeing is also not just a company that makes commercial jets. More than 40% of the company's revenue comes from its defense, space and security unit. Profit margins are improving in that business segment.
"The premise for investing in Boeing for the long-term is the 787. But the rest of Boeing's business is doing extremely well," said Ted Parrish, co-manager of the Henssler Equity fund (HEQFX), which owns the stock. "And the 787 is a top-notch product that airlines need to help them cut costs."
The combination of healthy orders for commercial jets and growing earnings in the defense business led Boeing to raise its full year outlook for both sales and profits back in July.
And for investors, that's what should matter. The numbers. Not the headlines. Boeing is just one example of a stock that has done exceedingly well lately despite bad publicity.
As my Fortune colleague Stephen Gandel recently pointed out, the only people that seem to be complaining about the JPMorgan Chase (JPM) London Whale loss last year are regulators and politicians. The bank's investors have nothing to lament. The stock is up more than 30% since Jamie Dimon's company first revealed the trading snafu in May 2012.
And take a look at all the companies with ties to the supposedly on-Death's-door PC business. I've already mentioned how well HP has done this year. It's mostly due to increased hopes of a Meg Whitman-led turnaround as opposed to expectations of a strong PC rebound.
Meanwhile, shares of Apple (AAPL) and the South Korea-listed shares of Samsung are both down year-to-date. That's stunning when you consider that Microsoft (and the PC) are allegedly nearing obsolescence mainly because of the popularity of smartphones and tablets from Apple and Samsung.
But back to Boeing. Unless something horrific happens to a Dreamliner, it seems unlikely that the stock is going to slow down any time soon.
The only possible hiccup could be the next round of the debt ceiling/budget drama in Washington. More cuts to defense spending could be a problem for Boeing and other contractors. But Boeing and competitors such as Lockheed Martin (LMT), Northrop Grumman (NOC) and Raytheon (RTN) have already made it through the sequestration process without collapsing.
And Boeing's stock still looks like a decent bargain. Shares trade for about 16 times 2014 earnings forecasts. That's reasonable considering analysts are forecasting a long-term earnings growth rate of about 13% a year on average. Boeing also trades at a discount to Airbus owner EADS, whose shares on the Paris stock exchange are valued at 17.5 times earnings forecasts for 2014.
It just goes to show that investors sometimes have to take emotion out of the equation. Bad press is never welcome. But unless it impacts the top and bottom lines, it's not worth sweating negative headlines.
Reader Comment of the Week! The only things that tickle my fancy more than pop culture references are sports analogies. (Apologies to my non-football loving editor, @metalkaren. I'll try and get an Anthrax reference in one of next week's columns.) I tweeted earlier this week that the continued surge in Herbalife (HLF) must make hedge fund manager and HLF short seller Bill Ackman has to be angrier than a New York Giants fan (namely me). Big Blue is 0-2 and not looking good.
One reader joked that Ackman's nemesis Carl Icahn must feel like a fan of another football team though. Icahn is on the opposite end of the HLF trade.
Ha! The 2-0 Chiefs have already matched their win total from all of last season and are looking good. (Go Jamaal Charles! Star of the Brooklyn Brawlers fantasy football team run by me and Mrs. Buzz.) I also see (and like) what you did there with the iCahn reference. However, Carl's Apple (AAPL) bet is not panning out as well as Herbalife. So maybe Icahn is only as happy as a New England Patriots fan? 2-0 but lots of injuries to worry about.