🗞 Boeing go Boing

WHILE YOU POUR THE JOE… ☕️
Another Reason to Follow Us

Remember when we pitched Google stock at $147.5? We broke down the entire deal and why we believed that was the bottom for the stock. Only a week has passed, and this stock is already up nearly 10% 🔥.

Of course, we pitched call options, so that return looks more like 65%, but we would advise taking a bit of money off the table today.

Why?

The FOMC meeting is going to be (arguably) the most important one since COVID-19. Everyone is expecting a 50bps interest rate cut now, but I think that would be too premature and aggressive for Powell.

I believe this can be the same set-up as September 2018, when the market expected a 50bps cut and got only a 25bps cut. As a result of this disappointment, the S&P 500 went on a three-month selloff 📉.

Of course, I will be positioning my portfolio heavily in the direction order flow goes right after the Fed announces the rate decision. Don’t try this at home.

To check out today’s safer deal might turn into another GOOGL run; let’s get on with today’s email 📧…

FOLLOW THE MONEY
Can Emerging Markets Emerge?

Historically, emerging market stocks tend to do well when the US dollar declines, as the American Depository Receipts (ADRs), which are quoted in dollars but priced in the foreign currency the stock is from, appreciate from the currency exchange.

For example, if the Brazilian currency appreciated against a falling US dollar, then a company like Petrobras would immediately increase in value for investors.

In this spirit, we have watched the rise (and rise) of Gold prices lately, even as we pitched silver as a better investment at this level (it was). After this price action, we concluded that the dollar index might be heading lower.

That’s good news for emerging market stocks like those in China and Argentina, which are our top choices when looking to invest in other nations. For today’s sake, however, we’re sticking with China.

Here’s the main thesis behind China, despite how slow and contracted the economy might look like.

Dividend yields on the stock index, the CSI 300, are above the yields now offered on the Chinese ten-year bond. This is not normal, and every time it happens in other economies, an equities buying spree tends to be the result.

But not in China, only because of irrational fear spread by the media, perhaps to keep retail investors away until the big guys are done buying.

So who’s buying?

For starters, this guy is Michael Burry (who predicted the 2008 financial crisis) from the movie The Big Short.

Burry has made Chinese stocks his largest holdings now, including Alibaba and Baidu, to cover the broader consumer and technology sectors in Asia’s powerhouse region.

His buying came right after these companies reported their most recent quarterly earnings results, confirming the potentially bullish path that they will take in the coming quarters. 📈 

Here’s another player:

Mr. George Soros is respected by many and dismissed by both due to his extremist views on the world and his making money on most tragedies (like an actual capitalist).

His portfolio has been focused on US tech names, the biggest blue chips, so his decision to invest in China says a lot.

He recently bought just over $70 million worth of Alibaba stock 💰️ in the past quarter. Most can agree this guy typically gets the inside ‘tip’ before everyone else, so we felt good as Alibaba is our largest holding.

Not to bore you again, because we already made a long-term post on our thesis for Alibaba stock in the coming years, but here’s a snapshot of what we think of the company.

First, management is buying back millions worth of stock each month for 2024, and they just listed Alibaba as a primary stock in Hong Kong. This opened the gates for billions to pour into the stock, as Chinese citizens can now buy the stock freely.

Alibaba's second-largest tailwind comes from its balance sheet, as the company holds billions worth of equity investments across China.

So, as long as stock valuations in China are compressed, Alibaba won’t post its true earnings potential as its equity holdings remain low, but this could change on the dollar fall and a major S&P 500 selloff from the FOMC meeting this month.

All told, we believe Alibaba has a path to be worth up to $400 a share 🎯, which makes sense when you consider the stock reached a high of $315 after COVID and its financials have only expanded since then.

TRADE OF THE WEEK
Cleared for Takeoff

There are few businesses that can call themselves a near monopoly, where they can get through scrutiny and drama relatively unscathed and come out better than they were before.

When considering businesses that fit this characteristic, you might think of brands like Coca-Cola and McDonald’s, but those aren’t good deals right now.

A better deal that could be near a monopoly? Unlikely, but here it is.

The stock is Boeing ✈️, which has sold off significantly after recent incidents and now a worker strike that has taken as much as $3 billion away from the company as it settles with its union.

Now, of course markets must have had their reasons (justifiable in this case), to sell the stock to a near 58% of its 52-week high, but we are starting to think some on Wall Street have become interested in this stock.

By the way, you’re getting this two days late. We pitched the quick version of this deal on our Twitter account, so if you’re not already there, I’d suggest you follow us for live updates.

Alright, let’s break the deal down, shall we? We'll start with the chart, knowing that the stock has sold off due to recent events that negatively affected the brand and its operations.

Two things before we do a deeper dive:

1. Boeing stock is now approaching a multi-year uptrend line acting as support, and while we’re not technical traders, this does mean something for everyone else looking to buy.

2. The stock is now reaching a major low-volume node, where we want to see a quick pivot or continuation based on volume.

Building on this, we now have to figure out whether the market is going to take a bullish or bearish bias toward Boeing at this key level.

If you’ve been with us for a while, you’ll recognize this table, if not, then welcome to insights from an Ex Goldman Sachs guy:

We are spreading the aerospace and defense industry to find the average valuations and earnings growth forecasts, this way we can spot the outliers.

Boeing is such an outlier to the upside based on the following ratios.

The stock trades at a 45.7x forward P/E ratio, above competitors like Lockheed Martin's 19.7x and Northrop Grumman's 18.8x. 🔥 

Markets are looking to overpay for Boeing stock because of the company's forecasted EPS growth, now set at 180% versus Lockheed Martin's 8.9% and Northrop Grumman's 10.6%.

We can safely assume that the market has a bullish bias toward Boeing stock, so we feel good breaking this deal down further as far as searching for market interest, and that's done through a volume study:

As Boeing stock approaches that low-volume node, this is exactly what we want to see, which is a spike in volume from 4 million shares up to 15 million. 📈 

Why?

Like any product in the world, low prices that cause bigger volume (more buyers) mean that the market believes that product’s price has fallen below its perceived value.

This tells us the market believes Boeing’s value is higher than today’s price, which is another check to move forward in building out our case.

There now needs to be an understanding of what could bring the stock’s upside to reality, and that will be clear inside the financials of the business.

Starting with the latest quarterly report, you can see up to $516 billion 💵 stuck in the backlog pipeline, and that will eventually be converted into revenue in due time.

But here’s a bigger trend that still stands ahead of Boeing and what we think will really cause the massive momentum down the line:

China is choosing Boeing as its supplier of aircraft, and according to the company, China’s air which is set to grow by 5.2% a year for the next 20 years

From this, management has calculated up to 8,830 new potential orders to come from China as the nation looks to modernize its fleet. Whether that’s a good enough reason or not, we don’t care because the market is willing to pay for it today.

So, where do we want to get out?

Zooming into the chart further, one good area to reassess this thesis is the $170 area 🎯. If we see further buying volume in this region, then we might as well hold until the next bracket extreme at $190.

Those are our two targets, and we’ll likely play call options on this idea since we have a well-defined catalyst (earnings).

January 2025 call options for $200-$220 strike look liquid enough for this, so I guess there you go. 🫰 

NOW GO AND MAKE IT HAPPEN
Know Your Competition

Today’s book recommendation 📖 comes as a reminder that you are really far behind in the trading and investment world, though it can sometimes not seem that way, thanks to social media.

This book shows some of the size, power, and strategies employed by the major players in the arena. It surely led me down a few rabbit holes.

To your success,

G. 🥃