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Bull Trader USA

Investing Club: We’re adding to our Boeing position, capitalizing on the stock’s underperformance

In this article

BA

A Boeing 737 MAX airplane lands after a test flight at Boeing Field in Seattle, Washington, June 29, 2020.
Karen Ducey | Reuters

(This article was sent first to members of the CNBC Investing Club with Jim Cramer. To get the real-time updates in your inbox, subscribe here.)

After you receive this email, we will be buying 50 shares of Boeing (BA) at roughly $193.16. Following the trade, the Charitable Trust will own 550 shares of Boeing. This buy will increase BA’s weight in the portfolio from about 2.34% to 2.56%.

We are currently scanning the market, looking for stocks to buy — not sell — into today’s broader weakness.

We mentioned Wednesday that we had Boeing on our watchlist, but we ultimately decided against adding to our position then due to our hesitancy of violating our low average cost basis.

After more reflection, we are making a small purchase this morning because we see a dislocation in value at these levels, and the stock’s underperformance year to date has made this position’s weighting in the portfolio very small.

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We like Boeing right here because the stock has now washed out nearly all the gains from earlier in the month that were attributed to China’s issuance of an airworthiness directive for the 737 MAX. If you recall, this was a key milestone toward the aircraft’s return to service in the world’s second-largest domestic aviation market.

But despite the lifting of a key overhang, BA shares have underperformed the broader market. As analysts at Morgan Stanley pointed out this morning in a research note, Boeing’s stock is only up 1.4% since the announcement compared with a 3.8% gain in the S&P 500. Given the magnitude of the announcement, this underperformance seems wrong to us.

We are keeping the buy small due to the numerous execution missteps on management’s end, but we believe 2022 will be a stronger year for Boeing as deliveries increase, free cash flow inflects, and international travel recovers.

Watching Chevron

Separately, we would be taking advantage of the weakness in oil to scale deeper into our position in Chevron (CVX) if we were not restricted from trading it. We think the oil market may be overreacting to the downside amid the omicron variant uncertainty, and the slide in interest rates makes Chevron’s big fat dividend look even more attractive. The dividend yield is about 4.65% at the current price, and Chevron can easily cover it at $70 per barrel. Even at $60 a barrel, Chevron believes they can generate $25 billion of excess cash over the next five years, excess meaning what’s left over after they fund their capital spending program and pay the dividend.

Chevron’s ability to generate excess cash flow at lower prices also suggests they have ample room to increase its share repurchase activity. To this point, just a few weeks ago, management said they plan to buy back $3 billion to $5 billion of stock annually, up from their previous target of $2 billion to $3 billion in buybacks.

As a reminder, we are restricted from trading any stock that Jim mentions on TV for three full days following the mention. Although we cannot make the trade for the Charitable Trust, our restrictions will never prevent us from telling the Investing Club what we would buy or sell and when we would do it.

The CNBC Investing Club is now the official home to my Charitable Trust. It’s the place where you can see every move we make for the portfolio and get my market insight before anyone else. The Charitable Trust and my writings are no longer affiliated with Action Alerts Plus in any way.

As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Typically, Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If the trade alert is sent pre-market, Jim waits 5 minutes after the market opens before executing the trade. If the trade alert is issued with less than 45 minutes in the trading day, Jim executes the trade 5 minutes before the market closes. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. See here for the investing disclaimer.

(Jim Cramer’s Charitable Trust is long BA, CVX .)

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