It’s earnings season, which means many investors are having a field day buying stocks that reported good numbers, in hopes that the shares will go higher from here.
But when it comes to one high-flyer that just released decent results, I don’t expect it will keep soaring into next quarter.
In fact, if you’re looking to profit from a sinking stock, this one is sitting atop my “short” list of companies that can provide profits on the downside for those who are willing to bet against the investors who are fueling its recent rise.
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Following a distinctly bumpy ride in recent weeks resulting from problems with its new 787 Dreamliner passenger plane, the stock of Boeing Co. (BA) stabilized somewhat on release of its fourth-quarter results.
There are three big reasons why you shouldn’t be distracted by the record revenue of $22.3 billion for the quarter or its 9% gain in core operating earnings to $1.8 billion for the period.
Reason No. 1 —
The Dreamliner is turning into a Nightmare Liner.
The aircraft’s lithium-ion battery system—which depends more heavily on electrical servo-mechanisms rather than traditional hydraulic systems—is a new technological area, and it’s not without problems. But a fix appears to be dependent on remedial actions by a foreign supplier (a company called GS Yuasa of Kyoto, Japan).
Good luck on that one, not to mention all the other as-yet undetected problems that arise when a major technological innovation is introduced.
Reason No. 2 —
A major competitor is learning from Boeing’s Dreamliner woes.
The European Aeronautic Defence and Space Company’s (EADS) forthcoming offering, the Airbus A350, now has time to safeguard its electrical architecture against the problems that have beset Boeing’s 787 Dreamliner.
The first test flight of the EADS Airbus A350, which will compete with the Dreamliner in some of its configurations, is scheduled for this summer.
In the airliner business, there has been a tradition of “who has the ball last tends to win.”
This is a trend I’ve seen time and again in emerging markets. Developed nations have taken years and even decades to get technologies and infrastructure in place. Meanwhile, up-and-coming economies and companies that have studied our processes (and mistakes) can recreate what we do — and do it better and faster and, in many cases, cheaper!
Speaking of money …
Billionaires Are Dumping Stocks. Time to Be Worried?
I tend to ignore the gloom-and-doom crowd… but when Warren Buffett starts dumping stocks, that’s different. Buffett recently sold his entire stake in Intel and Procter & Gamble… George Soros dumped all of his Johnson & Johnson, JP Morgan and Citigroup… and billionaire John Paulson is liquidating his positions in Family Dollar and Sara Lee.
Why are the billionaires dumping stocks? Do they know something the rest of us don’t?
Reason No. 3 —
Boeing’s military business could take a hit.
Although the full impact of the federal “budget sequester” scheduled for March 1 is likely to be muted by last-minute legislation, the defense budget is likely to be targeted by some legislators.
With the exception of units that liquidate malefactors such as Osama bin Laden and other al-Qaeda leaders, the current White House doesn’t appear to be as much of a fan of the military as some previous administrations.
Unfortunately for many defense contractors, military spending is an easier target for cuts than usual. And aerospace giant Boeing, traditionally a major beneficiary, could take a big hit.
So don’t be fooled by Boeing’s report for the full-year 2012 of record revenue with $81.7 billion with earnings from operations of $6.3 billion and earnings per share of $5.11. “The herd” reacted favorably to the fourth-quarter and full year results, but Boeing’s problems will persist for months to come.
Sometime in 2014 or 2015, we might laugh at all this. It’s possible by then that airlines will be finally appreciating the fuel efficiency of the Boeing 787, as sales of Dreamliners trend higher versus those of the Airbus A350 and the military budget stabilizes.
But for now, the profit potential in Boeing’s stock is on the short side.
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