Boeing (BA): Both value and growth characteristics

By Paul Goodwin, Analyst, Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 9/28/13 Sign up for free Cabot Wealth Advisory

Sometimes two different screens wind up selecting the same stock. The idea of “convergent validity,” when two unrelated pieces of evidence point in the same direction, really appeals to me.

My favorite is when a value screen and a growth screen wind up agreeing with one another, indicating that a company with good fundamentals and cheap valuation was also acting like a growth stock, enjoying good price action.

I’ve found 10 stocks that have been featured in Cabot Top Ten Trader and also in Cabot Benjamin Graham Value Investor. This combination of recommendations makes for a doubly interesting list of companies, and I’ll be writing about all 10 in future issues.

Remember, the value stocks that appear in Cabot Benjamin Graham Value Investor are vetted for soundness, historical revenue and earnings growth, projected revenue and earnings growth, dividend history and a bargain price versus past and future earnings. While a Cabot Top Ten Trader stock is selected for strong price growth in combination with an attractive business proposition and top-notch earnings growth, either now or in the not-too-distant future.

Here’s the first of our versatile qualifiers.

Boeing (BA) is a big, dividend-paying company with a market cap of almost $90 billion. It’s so big that it’s a component of the Dow Jones Industrials. And yet BA is up almost 70% over the past year, which isn’t bad when you compare it to the 17% gain in the S&P 500.

Here’s what Cabot Top Ten Trader had to say about the company in its latest appearance on September 23:

“Few growth investors will dig into a story like Boeing’s, assuming that this behemoth ($83 billion in revenue!) will be a slow poke. But the stock has a storied history of embarking of strong, persistent, multi-year upmoves, and we think another one of those just got underway in March. The big ideas here are that, first, Boeing’s new 787 Dreamliner, after numerous delays and problems, is finally being built and shipped; its larger but more fuel-efficient than many current jets, and orders have been huge. Second, and more generally, the entire jet industry is entering a big new order phase, as most are in good financial shape (for the first time in many years), and many international operators are rapidly expanding their fleets. Thousands of orders in backlog and increasing production rates should help Boeing’s earnings crank ahead by 15% or so for the next couple of years, but the big story is cash flow—according to one analyst, the firm’s free cash flow will total $13 per share in 2015 and actually grow from there. And management has said it wants to return 80% of free cash flow to shareholders each year! Translation: Dividends (now 49 cents quarter, yield of 1.6%) and share buybacks should expand greatly, which combined with growing earnings and a reasonable valuation (18 times this year’s estimate) should prod big investors to continue accumulating shares. We like it.”

Cabot Benjamin Graham Value Investor, meanwhile, includes Boeing in its list of 275 Top Value Stocks. With a maximum buy price of 64.52 and a minimum sell price of 90.07, BA has already outdistanced its rating as a value stock. But its five-year estimated earnings growth of 8.4%, its dividend yield of 1.9% and its current price-to-earnings ratio of 19, Boeing is a very solid corporate citizen.

If I’m right, Boeing is a much stronger stock for having survived both the fundamental rigors of a value analysis and the momentum requirements of a growth evaluation.