3 Reasons To Avoid Boeing
With new cases of the coronavirus spiking in the US and worldwide .
With the already historic unemployment levels and job losses in recent months .
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
Most people think the number one way to do that is to invest in assets that will grow your capital over time.
And this is huge part of things.
But another huge part of this is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.
Both things are necessary to build wealth. But most only think of investing well.
Today I want to talk about the second part of things that few consider… Staying away from investments where you’ve got a high probability of losing money in.
3 Reasons To Avoid Boeing Stock
- It’s Got An Enormous Amount of Debt
Boeing has an enormous amount of debt…
As of the most recent quarter its balance sheet is made up of 106.8% in total liabilities. That means the company has more debt than assets.
In other words, after subtracting total liabilities from total assets there’s a negative number. This means after subtracting debt from assets that the stocks equity – the shares you buy on the market – are worth less than $0.
This also means I can’t measure its debt/equity ratio for you… There’s nothing left over to measure after subtracting total liabilities.
This is rare when you see this at an operating company. But it’s horrible.
I want to invest in safe stocks that will be around for decades to come to help me build wealth over the long term. This helps insure I lose as little money as possible over time.
Typically, this means I invest in companies that have little to no debt compared to their cash and equity.
Boeing’s dealt with major issues for years now going back to the two deadly 737 Max air crashes. And then airlines stopping the flying of that model of Boeing produced planes.
Its estimated these two crashes and the fallout from them cost Boeing $18.6 billion… And then once it looked as if it was getting back on track the coronavirus hit and crushed the sales of planes.
The amount the coronavirus will cost Boeing is still too be determined as of this writing… But it this will harm the company for years to come in terms of lower revenues, profits, and cash flows.
This due to far lower amount of air travel and fewer airline operators needing to buy new planes from Boeing.
Because of these issues, Boeing’s already had to take out a massive $25 billion in new loans since the coronavirus pandemic first began… Just to keep operating
These loans were necessary. But they also put the company in even more danger because they increased its already large debt even more.
Massive debt like this a gigantic problem on its own in normal times… But we’re not living in normal times.
Combine this with the ongoing and rapid increase in coronavirus cases worldwide and this makes Boeing even more dangerous… But we’ll talk more about that later.
Before we get to that there’s another major issue this large debt load causes.
- It’s Not Producing Enough Profits and Cash Flow
In the most recent quarterly data Boeing was unprofitable on both a net income and free cash flow basis.
I’ll detail why below… But for now, let’s stick to its profitability and cash flow problems.
Its net income profitability margin in the trailing twelve months (TTM) period was negative 4.8%. And its free cash flow to sales (FCF/Sales) margin in this same time was negative 16.2%.
EDITOR’s NOTE – Trailing twelve months just means the last 12 months consecutively.
Generally, you want these numbers to be as high as possible on the positive side because that means the company is generating profits and cash flow from its operations.
But both are negative in the last 12 months.
As I mentioned before, this is bad enough in “normal times.” But even worse in the coronavirus times we’re living in now which gets us to the next major problem with Boeing.
- Uncertainty Related To The Coronavirus
This all circles back to the beginning and the entire hospitality industry getting hammered by the coronavirus.
Air travel, hotels, and restaurants are still getting hammered.
This is a large problem for all airline and airline related companies… Including airplane manufacturers like Boeing.
Both due to fewer people wanting to get on planes now. And due to whatever limitations, the government puts on them to continue operating during this pandemic.
As I mentioned in the previous article – 3 Reasons To Avoid American Airlines…
Airline traffic is down 96% in April 2020 compared to April 2019 as of the most recently available airline traffic data in the US.
An estimated half of all airplanes are parked at airports and not flying.
And 1/3rd of all seats on most domestic flights remains unfilled due to social distancing restrictions.
The airline business at full capacity has razor thin margins. So thin that over the entire history of airlines the industry combined is unprofitable.
We’ll know more for sure in the coming months as airlines release more up to date financial info. But anything below full capacity means lower revenues, profits, and cash flows for this entire industry.
These things are all affecting Boeing as well.
Boeing was in trouble before this pandemic due to the two 737 Max Air Crashes a few years ago.
Combining this with the still ongoing and exploding coronavirus crisis leading to far lower air travel and Boeing’s enormous debt and negative profitability and cash flow and its in major trouble going forward.
I recommend you stay far away from this entire industry for the time being for the reasons above. But especially stay away from Boeing.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.