We are strengthening our position in Boeing, taking advantage of the stock’s recent underperformance
A Boeing 737 MAX aircraft lands after a test flight at Boeing Field in Seattle, Washington, June 29, 2020.
Karen Ducey | Reuters
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After receiving this email, we will buy 50 Boeing (BA) shares at approximately $ 193.16. Following the transaction, the Charitable Trust will own 550 Boeing shares. This purchase will increase BA’s weight in the portfolio by approximately 2.34% to 2.56%.
We are currently scanning the market, looking for stocks to buy – not sell – in today’s broader weakness.
We mentioned on Wednesday that we had Boeing on our watch list, but ultimately decided not to increase our position then due to our reluctance to violate our low average cost base.
After more thought, we are making a small buy this morning as we see value dislocation at these levels, and the stock’s underperformance since the start of the year has made this position’s weight in the portfolio very low.
We love Boeing here because the action has now erased nearly all of the earlier month’s gains that were attributed to China’s release of an airworthiness directive for the 737 MAX. If you recall, this was a key step towards returning the aircraft to service in the world’s second largest domestic aviation market.
But despite lifting a key surplus, BA stocks underperformed the broader market. As Morgan Stanley analysts pointed out this morning in a research note, Boeing stock is only up 1.4% since the announcement compared to a 3.8% gain for the S&P 500. Given the size of the announcement, this underperformance seems wrong to us.
We are keeping the purchase small due to the many execution missteps on the part of management, but we believe 2022 will be a stronger year for Boeing as deliveries increase, free cash flow changes and travel changes. internationals are recovering.
In addition, we would take advantage of the weakness in oil to deepen our position in Chevron (CVX) if we were not prevented from trading. We believe the oil market may overreact to the downside amid the uncertainty of the omicron variant, and lower interest rates make Chevron’s big dividend even more appealing. The dividend yield is around 4.65% at the current price, and Chevron can easily hedge it at $ 70 a barrel. Even at $ 60 a barrel, Chevron believes it can generate $ 25 billion in excess cash over the next five years, which means what’s left after funding its capital spending program and paying the dividend.
Chevron’s ability to generate excess cash flow at lower prices also suggests that it has sufficient leeway to increase its share buyback activity. At this point, just a few weeks ago, management announced plans to repurchase $ 3-5 billion in stock per year, up from its previous target of $ 2-3 billion in buybacks.
As a reminder, we are prohibited from trading any stock mentioned by Jim on television for three full days following the mention. While we cannot transact for the Charitable Trust, our restrictions will never prevent us from telling the investment club what and when we would buy or sell.
The CNBC Investing Club is now the official headquarters of my charity. This is the place where you can see every move we make for the portfolio and get my market snapshot before anyone else. The Charitable Trust and my writings are no longer affiliated with Action Alerts Plus in any way.
As a CNBC Investing Club Subscriber with Jim Cramer, you will receive a Trade Alert before Jim completes a trade. Typically, Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust portfolio. If the trade alert is sent before the trade, Jim waits 5 minutes after the market opens before executing the trade. If the trade alert is issued less than 45 minutes during the trading day, Jim executes the trade 5 minutes before the market closes. If Jim has mentioned a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. See here for investment disclaimer.
(Jim Cramer’s charitable trust is long BA, CLC.)