Boeing (BA) Reports Mixed Quarter

Stock is down a little under 5%, to $66, at the moment on mixed results on the Quarter.

I think the stock is down on the few one time charges. In contrast, the maiden flight of the Dreamliner is still scheduled for late August. Moreover, U.S airlines only makes up 10% of the BCA backlog.
I want to verify this but I think I heard BA say they spent around $900 million on $11 million shares. Average out to $81.82/share

I still think BA is a buy now but hopefully we will see it closer to $63.

Boeing is very bullish on ramping up of deliveries in FY2009 and even more so in FY 2010.

Today's Stories for 7/22/08

Wachovia (WB) Post a $8.86 billion loss in the second quarter, slashing its dividend, and cutting 6,350 jobs after losses tied to mortgages soared. But this this into perspective, WB has less than a $25 billion enterprise value.

Stock is down over 10.5% to $11.80.

WB released news last night that they will quit the wholesale lending business. My theory is if a company releases bad news within the quiet period before earnings, earnings will be BAD. It tells me they are simply trying to stretch out the news over a series of days. True to theory, this report was just awful. I am surprised not to have heard of them raising cash this Q. The acquisition the company completed last year of California-based Golden West seem to be the bulldozer that is clearing shareholder value. Although non-performing assets are "only" 2.41%, this continues to be a must sell until they raise boatloads of money and/or break the company apart.

Time to take profits in Circuit City (CC) at $2.30. 15% gain in a retail stock in this terrible market is a gift- don't give it back!

Natural Gas breaks below $10 for the first time in a long time. Good news for stocks like Owens-Illinios (OI) which is up slightly today to $46.43 but up almost $1.00 from low of the day.

Big news for Caterpillar (CAT):

Caterpillar's 2Q profit rises 34 percent as stronger sales outpace material, freight costs PITTSBURGH (AP) -- Caterpillar Inc.'s second-quarter profit jumped 34 percent as stronger international sales outpaced higher raw material and freight costs for the maker of backhoes and other heavy equipment.

The Peoria, Ill.-based company on Tuesday reported profit of $1.11 billion, or $1.74 per share, for the three months ended June 30, compared with $823 million, or $1.24 per share, a year earlier.

The results easily beat Wall Street expectations.

Quarterly revenue rose 20 percent to $13.62 billion from $11.36 billion, with sales shifting outside North America. Caterpillar generated 60 percent of quarterly sales and revenues outside North America, up from 55 percent a year earlier.

Analysts polled by Thomson Financial, on average, expected profit of $1.54 per share on revenue of $12.69 billion.

Because price increases outpaced material and freight costs, I see continued pricing power in those 2 sectors. Steel stocks seems strong and so do the rails like CSX.

Wal-Mart (WMT) rallies 2.34% to $58.65. This stock has faced a lot of resistance in the $59-60 range. If you got into this stock as a quick trade, it is time to start scaling out. If you're in as an investment, I am still bullish on WMT- they are doing brilliant things with their stores.

First Solar (FSLR) is down 3.7% to $270.80. I am still bearish on this stock. I realize that California is a huge catalyst but I think that California may have one of the largest budget shortfalls in the Union with the current housing market. Also, the slow down in Europe should definitely effect FSLR given most of their business come from a new major clients from Germany.

Apple (AAPL) reports Q3: Guidance Disappoints

I won't talk about Q3 numbers. They were great but they don't matter: it's the past.

The very first numbers that jumped out for me is Q4 EPS guidance of $1.00 on $7.8 billion.

This is, obviously, below Wall Street guidance and I don't care. AAPL consistently gives out "conservative" (AKA sandbags) earnings. What bothers me is they are projecting less EPS on higher revenue than Q3.

This has consistently been a company that puts its products on no or very small sales. This has been a high margin business and they are projecting such a sharp decrease?

Next FY margins are said to contract from 34% to 30%- expect multiple contraction.

On top of this, Steve Jobs was not on the conference call and they would not disclose his state of health. I'm not speculating on his health, vegans can be a crazy bunch, but this will probably spook some people and contribute to the downside of the stock.

Big Movers Today

MasterCard (MA) down 4.58% to $268.09

Oil and Gas UltraShort (DUG) down 4.53% to $32.65

AGCO (AG) up 7.72% to $54.72

Deere (DE) up 5.03% to $70.74

Cleveland Cliffs (CLF) up 5.56% to $103.70

AK Steel (AKS) up 7.09% to $50.43

U.S. Steel (X) up 4.48% to $149.00

Chicago Mercantile Exchange (CME) down 3.60% to $320.48

Garmin (GRMN) up 2.30% to $46.10 on TomTom's earnings. I recommend lightening up or completely exiting the short recommendation. There are some signs of a slow-down but less than expected.

Bullish on Boeing (BA)

Current Price: 66.50

Boeing (BA) seems to have found large support in the range of $63 (I wish I posted this $4 ago). Hopefully, we will see this range again as some random event causes oil to spike and market to fall back from this 500 point rally.

This call is based on the hypothesis that fears of order cancellations are overblown. I think that this recent SURGE in airlines can result in stock being issued to afford these new fuel-efficient planes. However, this call does not depend on such a scenario.

The Numbers:

• FY 2008 EPS Estimate is $5.92, giving it a 11.4 P/E
• FY 2009 EPS Estimate is $6.97, giving it a 9.7 Forward P/E
• The growth rate between FY 08 and 09 is 17.7% growth rate and a 0.55 PEG ratio
• 3-5 year growth rate is expected to be 32.9%, giving it a long-term 0.29 PEG based on FY 09 P/E
• The current TTM P/E, 11.77, is the lowest this stock has traded in at least 5 years.
• With a backlog of $350+ billion, the company is trading at 1/7 of backlog.

Don't forget the GIGANTIC stock buyback. It has been easy to forget about the $7 billion buyback since the stock has fallen from about $120 since last year. However, this stock buy back is 14% of the outstanding shares at this valuation- incredible. On top of that, you can pick up a $0.35 quarterly dividend. Nothing wrong with a 2.50% yield.

Boeing is bullish on its future too. I reported earlier Boeing's increase its 20 year projection of commercial airline deliveries. I can see this translating into a bullish guidance when BA reports on July 23.

Boeing is a globalization play. The recent news of sales to China for $6.3 billion and many billions more to the oil rich countries support this.The orders beat many analyst forecasts.

(As a side note, I believe in world economies bonding. We have seen the fallout of the Latin American, Russian, and Japanese economies spill over and hurt the rest of the world. The world is more correlated today than before: exports are growing as a larger portion of world GDP. Where is all this decoupling garbage coming from? The bonding of world economies is more true today than ever before. )

BA also seems to have some of the best technology. I am not just talking about the new Dreamliner. Recently,

Boeing Co. said if the U.S. Secretary of Defense picks its 767-based tanker, instead of a rival Airbus A330-based model from Northrop Grumman Corp. and EADS, the U.S. Air Force could save more than $40 billion in fuel bills over 40 years.

In a study paid for by Boeing (NYSE: BA) and conducted by Conklin & de Decker Information, Boeing said, it was determined that the heavier A330-based tanker consumes 24 percent more fuel per trip than its 767-based tanker model.

Also important to note, BA might win back the controversial tanker deal it lost last year. This would be an astonishing turn of events.

Lastly, I must mention the Dreamliner progress. Although, the Boeing team successfully increased its 737 production, the 777 Freighter and the 747-8 programs remain on track, not all is well. The 787 has been pushed back repeatedly and there are fears that it will hurt economic prospects. It will actually take some time for the 787 to be profitable. Initial estimates are break even as the learning curve needs to be built up. More importantly, we have not heard of anymore set back. I am forced to assume they feel comfortable with the current first flight buffer so we will not have anymore delays

Overall, the aerospace industry is an oligopoly. Both BA and Northrup Grumman (NOC) have tons of pricing power so I do not see raw material costs affecting that is affecting so many other companies. Surprisingly, BA operating margin for commerical plans has been growing strongly. Last quarter, BA reported in Q1 2008 that operating margins expanded to 11.3% from 9.3% from Q1 of 2007. Boeing estimates an overall operating margin of 10.5% in 2008 and growth above that in 2009.

This BA stock price and rolling EPS


Also pension expenses are said to be $300 million lower in 2009 vs. 2008. In Q1, BA offer 2009 guidance between $6.80 and $7.00, below Wall Street estimates, but Boeing has historically been a conservative company, raising forecasts in Q2 and Q3.

Although, industrials are hated at the moment, I believe Boeing is poised to outperform over the next 12-24 months.

Get Out of Google (GOOG) and Short It!

Yesterday's report was tough. Huge miss on many many levels. GOOG is a great company but the stock is broken an the multiple needs to come down.

Get out now, $495.00, and short it until at least $480.00 and down to about $470ish.



This stock will now trade on technicals and should fill the gap (on a self-fulfilling prophecy level).

GOOG REPORTS: HUGE MISS

Key Metrics (as per TechTicker)

• Gross Revenue: $5.4 billion consensus, up 40%
  
• Net Revenue: $3.88 billion consensus, up 44%
  
• EPS: $4.75
  

Sticking my neck out today for GOOG at $528.00, currently $532.50.

*UPDATE*

Google 2Q Non-GAAP EPS $4.63. GAAP EPS $3.92

Revenue of only $5.37 billion

• Paid Clicks Up 19%
• International Revenue of $2.80 billion- 52% ot Total Revenue
• Network Revenue of $1.66 billion
• TAC $1.47 billion