Things I've heard and seen

It’s been a busy few weeks, dear reader. My apologies. But the markets never stop. So, time to throw a couple of things together into one post…

If it’s Boeing, you might not get going

A lot of people have been asking me about what’s going on at Boeing. Including, indirectly, the guys at Chit Chat Money. (I hear you, Brett and Ryan!)

Let’s be clear: A plugged hole opening up at 16,000 feet is suboptimal. I don’t think there is much of a material impact here, other than perhaps a temporary slowing of sales. This is pretty clearly an installation flaw, and not a design issue. And it is a much easier thing to check and reinforce than some of the engineering issues Boeing has faced in recent years. It also appears the root of the problem is at Spirit AeroSystems, a growing pain for Boeing but one it is tied to at the hip.

But to say the obvious, these things have got to stop happening! Boeing is the new General Electric. Every time something bad happens it is easy to say, “well, as long as nothing new comes out they can get past this!” And inevitably, something new comes out.

The 737 MAX groundings and fatalities are the obvious examples, but it goes far deeper than that. The once-proud 787 Dreamliner program is a mess. The new version of the 777 is years late and chronically troubled. Boeing’s most important customer is taking pot-shots. Labor is getting grumpy.

The defense side gets less coverage, but things aren’t much better over there. Boeing’s signature aircraft platform win from the last few decades came at the cost of one of its executives at the time going to jail for improper dealings. The platform, a refueling tanker, came in so late and over budget it became a joke, and when the first airframes finally were delivered to the Air Force they had to be sent back because Boeing accidently left tools and some spare parts rattling around in the hulls. I kid you not. 

Boeing’s signature defense aircraft is a tanker because the company has been blown out of every major fighter competition for the last few decades, save a training jet. That could change in the future, as Boeing appears to be in the dogflight to replace the F-22, but there are years of failures rotting the core and most of the company’s major contributors were inherited via acquisition, and not developed in house.

Boeing is a mess. And the guy they have in charge of cleaning up the mess, CEO Dave Calhoun, got the job at the height of the MAX issues after serving as chairman of the board through the years that led up to the MAX issues. How’s that for a clean start?

Yet, despite it all, here’s the thing about Boeing: The bull case is clear, and it is enticing. The company is half of a global duopoly for commercial aircraft at a moment in history where there is a decade’s worth of demand for new commercial airplanes. The Airbus order book is overflowing, just as the Boeing order book is. Even if a customer wants to give up on Boeing they can’t. Unless of course they want to wait a decade or so for their next delivery.

Boeing shares still trade at half of their pre-MAX crash/pandemic highs. The company took on a lot of debt during those years (its enterprise value is only 30% lower than where it was at the highs), but an uptick in deliveries is on track in 2024 even with the current 737 headlines. Those deliveries will provide much-needed cash to pay down debt. The patient is getting healthier.

All it needs to do is avoid further self-inflicted wounds. Or, as a wise person put it on Twitter…

Maybe this time is different. It could be. I would guess that Boeing shares go higher from here. Over time. But until Boeing shows it has turned the corner, I would rather hunt elsewhere. Especially since there are so many other wonderful ways to invest in the commercial aerospace surge. Companies able to outperform Boeing even if it does get its act together.

When someone tells you who they are, believe them. Boeing has spent the last half decade painting a pretty unattractive self-portrait. Be careful going value hunting here.

The short Apple trade is getting really crowded

From the terminal on Friday…

Hedgeye is hardly alone here. It feels like a lot of the discussion around Apple these days is pretty bearish. I should say I respect Hedgeye, and I think they might be right here. Apple does seemingly have some headwinds it is facing right now, including what the firm mentions as well as questions about its Alphabet deal and AppStore revenue.

Apple shares are up 40% over the past year and are up 400% over the past five years. Generally speaking, a stock that has climbed like that is always vulnerable to a pretty significant downdraft. Given the aforementioned headwinds, a selloff seems quite possible in 2024.

All of it makes sense. And yet, I don’t know why we should care. We talk a lot around here about playing a different game than the traders. I’d encourage anyone who wants to get rich over time to not fret about the potential issues at Apple.

It is hard to imagine Apple’s sales pipeline just evaporating. And given the company has more cash on hand than most countries, even if by some twist of fate the iPhone is over and Apple becomes a tobacco stock there are a lot of years of very lucrative melting before that iceberg is gone. Even the worst worst-case scenario probably plays out pretty ok for investors over time. (And let’s be clear, the iPhone isn’t going anywhere. And this is coming from an Android guy!)

I don’t own much in the Magnificent Seven. That’s a me problem. I’m poorer for it. But it is hard for me to ignore valuations in areas where I am not an expert to begin with. I do own Microsoft, a now-mature tech giant whose valuation was once bruised by headwinds and fears about what the future might hold. My Microsoft shares are a near triple from where I bought them. There are times to buy these things.

I’m getting way ahead of myself here. But if Hedgeye is right, and again I do believe they could be right, I might finally own some Apple shares one of these days.

What do these two items have in common? In panic, comes opportunity. Sometimes. Just not always.

Go watch the new Trevor Noah special

While most of you were complaining about the streaming app you needed to have in order to watch bad football, I was hunting around for content on the app we all have basically by default. If you haven’t done so already, make a point to watch the new Trevor Noah special on Netflix.

Noah is smarter than either of us. And his background gives him such an interesting perspective on the news. I’ll confess I grew tired of his Daily Show, and there are moments where he swats at straw men in this special the way he used to way too often on the Comedy Central show. But it is a good hour, and the point he makes on Olympic swimming will change the way you view the sport for the rest of your life.

Related (you’ll understand after you watch): I, true to my last name, once won a karaoke contest thanks to this song.

Spend less time stressing about your portfolio and more time watching standup. Or singing Neil Diamond songs. You’ll thank me later.

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