MAX 9 may not affect Boeing's earnings; should you buy the dip?

Key Points

• The recent decline in Boeing stock may allow you to squeeze inefficiencies in the market today; several tailwinds build a case for a rebound.
• Markets have voted, and a "sister stock" is also being bid up by traders in expectation of an earnings beat.
• It pays off to be a contrarian, especially when a good story matches the numbers.

Good traders ride the trend; they were the ones who came up with the saying, "The trend is your friend." 

While they may successfully ride the waves in the big market movers, those who take on the so-called "pain trades" write home about the stupidly massive amounts of money they extract from the market.

Today, nobody can deny that the sentiment in Boeing NYSE: BA by bears spiked by its recent incident involving a 737 MAX 9 jet in an Alaska Air Group NYSE: ALK flight. 

In light of the event, the FAA decided to ground the MAX 9 jet line, and some investors ditched the stock ahead of its earnings on January 31 in fear of a miss. 

These investors may have to sit in regret, though, as specific markers are pointing to Boeing not only reporting that the incident had no impact on earnings but that the quarterly results could beat expectations and return the nearly 18% contraction the stock experienced in the past week alone; but more on that later.

What's the whisper?

Listening to the market's whisper can prove profitable, especially when determining where a particular stock may go. However, take a minute to gauge where the biggest names on Wall Street see the market going, and then you can zoom into the intricacies of individual traders.

Analysts at The Goldman Sachs Group NYSE: GS rolled out its outlook for 2024, and the theme favors a breakout in the United States manufacturing sector sponsored by potential FED interest rate cuts.

Because manufacturing activity will directly benefit Boeing, and cheaper money will spark new activity in the airline stocks, it is a matter of time before the broader market realizes what's at hand.

You'll notice increasing demand when looking at the respondents section in the latest ISM manufacturing PMI index report. The backlog of orders in the industry is beginning to rise, which would only be the case if customers and producers were expecting a positive economic environment to come soon.

More than that, the possibility of a breakout sees a green light from the currently compressed oil prices. Now, Goldman still sees oil going as high as $100 in 2024, a sign of rising demand from the manufacturing sector. Exploiting inefficiencies is all the more important in this play.

So, look, the macro perspective looks great for a Boeing comeback, but a good story without numbers is just a fairytale. You did not come to MarketBeat to trade on fairytales so check the boxes.

The players are in 

Check this out: according to Boeing's news releases on their investor relations website, 100% of all the jet orders that have been made and mostly fulfilled involve either 737 MAX 8 jets or MAX 10 jets. None of these orders, reported as revenue on January 31, include MAX 9 jets currently grounded by the FAA.

It doesn't take a rocket scientist to know that the recent decline has been overdone on negative media articles focusing on the Alaska incident. But thankfully, it only takes a group of focused and determined traders to point out the gaps in a stock's price. The market did its homework and is bidding up Boeing stock for an explosive turnaround.

Seeing how the market purposely overpays for Boeing and Spirit AeroSystems NYSE: SPR stock is interesting. Spirit, being the fuselage parts provider for Boeing, is also being punished for the faulty MAX 9 when most of its revenues also come from MAX 8 and 10 models.

With an industry average forward P/E ratio of 20.0x, Boeing is valued at a 186% premium to peers in its 57.1x multiple. This valuation considers the recent sell-off, and analysts still see 166.0% growth in EPS for the next twelve months, so as they say, "It must be expensive for a reason."

Spirit also trades at a steep 215.9% premium to the transportation equipment industry, and analysts agreed on slapping a 123.7% EPS growth projection on this stock as well. The two stocks directly related to the Alaska incident are the same ones the market is willing to pay a premium for.

Knowing what you know now, it will be too late to sit and wait for earnings on January 31 to find out that the MAX 9 incident barely impacted financials, and the sentiment on Spirit acts as a sounding board for this perception today.