Profit From Boeing's Turbulence
Boeing may become a value buy, but the shares are only down about 10%. it's not there yet. Boeing may be a good stock to own but it hasn't reached value status as a result of the battery problems yet.
If the Dreamliner issues are fixed fast, and I mean really fast, investors can expect a slow and steady recovery. Keep in mind that stocks tend to drop much faster than they move higher. We do have an idea of what can happen.
As you may recall, during the summer of 2010, the Gulf of Mexico had a major oil spill that put into question the future of several companies. BP (BP) , TransOcean (RIG) , and Haliburton (HAL) share prices were hit hard and the problems dragged on for months.
Boeing has everyone and their regulatory brother putting a microscope on the Dreamliner aircraft. Boeing has the potential to have a constant stream of new issues that it will need to fix for the next two or three months. In the meantime, Boeing shares will continue losing altitude as long as problems stay in the news.
The fear isn't that the planes have a potential battery fire problem -- that is fixable and will get worked out. The real fear is that other issues will be found during the examination, and this will drag on. Enough negative news and Boeing may suffer a shift in market sentiment.
Apple (AAPL) recently suffered from a shift in market sentiment that resulted in a 30% drop in share price. Valuations and fundamentals were thrown out the window, and people sold because of fear the shares would continue falling lower.It turns into a self-fulfilling feedback loop, and it can get ugly. Look at the negative feedback loop BP endured.
I traded BP during the entire Gulf mess, and I crunched the numbers to account for every possible scenario. Because of corporate entities, BP wasn't facing a complete liquidation and yet it was reported in the media that it may go out of business. After two years, BP shares have not fully recovered.
During the gulf spill with BP, and more recently with Apple, the way to protect your portfolio was to use options. You don't have to buy expensive puts to protect your shares if you believe Boeing will exit on the other side and you have no intention of selling your shares. For the record, I view this event as a setup to buy shares, but I will get to that in a moment.