Shares of Boeing (NYSE:BA | BA Price Prediction) have been experiencing quite a bit of turbulence in recent months, and the ride might not calm down anytime soon. Despite the choppiness, the hedge funds have continued to board, and that might be something for retail investors to take note of, especially as the once-troubled aircraft maker looks to finally get things right.
Of course, delays, defects (think the scratched wiring setback), and debts have been top concerns that have likely weighed heavily on the share price in recent years. And while they’re real issues, I do think that the turnaround story and newly depressed price of admission might be something for value seekers to be hopeful about. Add the geopolitical uncertainties that have really rocked markets in recent weeks into the equation, and it’s not a mystery as to why Boeing is back below $200 per share.
Boeing stock has been a long-time laggard, but as one of two major plane makers, any headwinds and shortcomings probably aren’t going to be make-or-break. In other words, Boeing’s favorable market positioning grants it an economic moat that few other firms have. And once it does make the right fixes, I have no doubt that the stock can start lifting off again, perhaps without falling into another one of its tailspins. Perhaps that’s why several notable hedge funds have been picking up shares in the last quarter.
The smart money is betting on Boeing. That’s probably a smart idea
It was quite tough to keep up with the number of smart money managers who were adding to their existing positions in Boeing. From Alpha Wave Global to the legendary Ratan Capital Management, which has been outpacing the market by miles as of the last quarter, there were a lot of active buyers in Q4. While following the smart money may be met with questionable results in any given quarter, I do think the Boeing buying paints an interesting picture for what could be ahead, especially as investors turn away from tech and software towards hard assets.
Looking ahead, Boeing’s trajectory seems to point to a big free cash flow (FCF) inflection point as the firm works its way through the 737 MAX backlog. Analysts over at TD Cowen see significant FCF growth in the coming years. The Spirit AeroSystems acquisition might also be a move that pays big dividends later on.
Add the potential for orders from China into the equation, and there’s certainly a lot of upside if things do go right for the firm after all that’s gone wrong in past years. Combined with the solid defense business, which could act as a volatility reducer if the Iran war doesn’t resolve soon, and it’s no mystery as to why much of the smart money crowd is a fan right here.
The case for Boeing as a deep value play
While there’s a lot going on behind the scenes (recent acquisition, scratched wiring issue, and macro uncertainty), I do think the smart money is right to be a net buyer. Though the stock might look expensive on the surface at 80.5 times trailing price-to-earnings (P/E), the firm itself seems to be flying out of the haze and into some bluer skies.
Whether it’s the FCF on the horizon or the potential for a surprise order surge from China, it’s hard to sleep on the stock while it’s going for 1.70 times price-to-sales (P/S). Sure, Boeing might be on the descent once again, but it’s tough to tell just how much the P/E multiple stands to compress as earnings are ready to roar. Any way you look at it, Boeing has a lot of underrated catalysts, and that makes the hedge fund favorite a great buy for the second quarter, at least in my view.
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