What caused the Dow Jones Industrial Average (DJIA) to lag the S&P 500 (SPX) on Monday? There’s only one culprit, as the financial headlines blasted out some unsettling news pertaining to Boeing (NYSE:BA).
While Boeing wasn’t the only company involved, investors dumped BA stock, and its share price fell 8%. That’s an unusually steep move for a stock that typically doesn’t move very far on non-earnings days.
At the same time, there’s a disconnect between investors’ panic and some analysts’ calm demeanor. Thus, perhaps Boeing’s troubles are overstated and level-headed traders can wrest opportunity from volatility.
Odd logic on Wall Street
Sometimes investors’ behavior can be hard to explain. Here’s a prime example. On Jan. 5, an airplane operated by Alaska Air Group’s (NYSE:ALK) Alaska Airlines made an emergency landing at Portland International Airport in Oregon. Reportedly, a door plug came off of the plane, leaving a hole in its place.
According to Barron’s, Alaska Airlines acknowledged that several passengers required medical attention but have since been medically cleared. Clearly, this isn’t great public relations for Alaska Airlines. Yet, ALK stock was nearly unchanged on Monday, even as many people first caught wind of the incident on that day.
Can you guess which stock was punished instead? If you guessed BA stock, you’re absolutely right. Even though approximately 21% of Alaska Airlines’ jets are Boeing 65 MAX 9 jets, the type identified in Friday’s emergency landing, investors decided to let ALK stock off scot-free.
They took 100% of their consternation out on Boeing stock, and of course, the financial media had a field day with this unfortunate incident. This undoubtedly perpetuated a vicious cycle of share selling, negative media coverage and more share selling.
In response to the aforementioned incident, the Federal Aviation Administration (FAA) ordered the grounding of 737 of Boeing’s MAX 9 jets. That total doesn’t represent all of Boeing’s MAX 9 jets — only the ones that have the same configuration and potential issues as the grounded Alaska Airlines jet.
Although investors opted not to punish ALK stock, FAA-licensed pilot Anthony C. Roman seemed to call Alaska Airlines’ judgment into question. The dangerous “incident occurred several times, including depressurization problems, just the day prior to the accident,” Roman observed.
Consequently, Roman is “surprised that Alaska Airlines did not ground their Max 9 fleet and conduct a thorough inspection of all of the aircraft to see if it could be replicated.” Nevertheless, Alaska Airlines stock continues to fly under the radar, and the market’s scrutiny remains firmly fixed on Boeing.
Boeing stock investors: How thick is your skin?
As traders dumped their BA shares, some experts on Wall Street kept their composure and considered the bigger picture. Analysts certainly aren’t always right, but sometimes their experience in the financial markets can help them stay calm when amateur investors are in panic mode.
RBC Capital Markets analyst Ken Herbert is among the experts who aren’t losing their cool amid the apparent turmoil.
“This accident does not alter our positive view on [Boeing],” he declared.
Herbert’s reassuring remark comes with cautionary notes for investors, however. Investing in Boeing stock “requires thick skin, and headline risk is substantial,” he warned.
Still, the RBC analyst reported, “Initial indications are that this is an isolated incident.”
I tend to concur, as Boeing said (per Barron’s) that it agrees with the FAA’s decision to ground the aforementioned 737 MAX 9 jets. In other words, Boeing is sure to be extra careful with its manufacturing processes for the foreseeable future. After all, the last thing it needs is to have back-to-back incidents occur.
As Herbert sees it, the “financial risk to the MAX is not thesis-changing.” In a similar vein, JPMorgan Chase (NYSE:JPM) analyst Seth Seifman isn’t prepared to throw in the towel on BA stock, figuring the “extent of the setback is not yet clear, with a range of potential outcomes.”
Other unfazed analysts include Jefferies analyst Sheila Kahyaoglu, who expects the potential safety issue with Boeing’s MAX 9 jets to be resolved quickly, and Melius Research analyst Robert Spingarn, who assured investors that Alaska Airlines has inspected several of the its jets and didn’t find anything concerning.
Investors shouldn’t ignore the unfortunate incident with the Alaska Airlines flight. Instead, they should consider the totality of Boeing’s value and expect the company to prioritize product safety and integrity for the remainder of the year at least. With that in mind — and with a thick-enough skin — you might choose to buy the dip with the now-discounted Boeing stock.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
