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July 25, 2019, 9:54 a.m. EDT

How Boeing could ultimately be responsible for killing the bull market

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By Shawn Langlois, MarketWatch


Getty Images
Boeing 737 MAX aircraft parked at Southern California Logistics Airport.

Boeing turned in a massive quarterly loss on Wednesday and cast doubt on yet another one of its planes in the process.

The stock dropped another 3.5% early Thursday, weighing heavily on the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.79%  , which was down triple-digits in early trades. Boeing has now lost ground in four straight sessions.

The weakness shouldn’t come as any surprise to anybody who read Bill Blain’s bearish take earlier this month where he said Boeing /zigman2/quotes/208579720/composite BA -1.06% could ultimately be responsible for killing this aging bull market.

“I am concerned the market is underestimating just how bad things could go for Boeing,” the Shard Capital strategist warned at the time . “When it does, the whole equity market will knee-jerk aggressively, triggering pain across all stocks.”

Of course, we’re not there yet, but Blain is convinced that trouble will continue to dog the Dow’s biggest component. “This gets worse,” he told MarketWatch on Wednesday. “Few reasons to be positive.”

He went into specific Boeing issues in his initial note — waning demand, legal problems, cash bleed, loss of confidence — to paint what he believes to be a bleak picture, not only for the stock, but for the rest of the market as well.

“The likely trigger for a market shock will be a ‘no-see-em.’”

Bill Blain

For one, he says, it’s unlikely that the 737 Max, with its inventory piling up in airport parking lots, will get back in the air this year. “Boeing is hemorrhaging cash to build an aircraft no-one can fly — not a great strategy,” Blain wrote.

So, the company’s trying to rush deliveries of other aircrafts to make up for it.

That, however, has presented its own issues, including problems with 787 Dreamliners, which the New York Times /zigman2/quotes/202090840/composite NYT +3.00% reported are suffering from “shoddy production and weak oversight” at Boeing’s Charleston factory.

Read: What investors should really obsess over with the 737 Max

Another problem is the manufacturer’s approach of upgrading its old aircraft instead of designing new ones.

“It made commercial sense for Boeing to keep upgrading and upscaling the [737],” Blain said, “because it kept the factories delivering and they could tell regulators it was just an upgrade not a new design saving billions on testing and training.”

But that led to cost-cutting that compromised the 737 Max.

“Boeing must rue the day they didn’t go with completely new design — which would have been hugely expensive and killed the stock performance of recent years — but would have left Boeing dominating the larger aircraft space and reaping the kinds of returns it could have made on the Dreamliner,” he wrote.

So what’s it all mean for investors?

“The likely trigger for a market shock will be a ‘no-see-em,’” Blain predicted. “Something so obviously hidden in plain sight it catches us completely and painfully by the short and curlies.”

And that trigger, he says, could be Boeing.

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
28,132.05
+220.75 +0.79%
Volume: 277.74M
Dec. 12, 2019 4:55p
loading...
/zigman2/quotes/208579720/composite
US : U.S.: NYSE
$ 346.29
-3.71 -1.06%
Volume: 5.98M
Dec. 12, 2019 6:30p
P/E Ratio
53.11
Dividend Yield
2.37%
Market Cap
$196.98 billion
Rev. per Employee
$660,961
loading...
/zigman2/quotes/202090840/composite
US : U.S.: NYSE
$ 33.32
+0.97 +3.00%
Volume: 1.83M
Dec. 12, 2019 6:30p
P/E Ratio
43.91
Dividend Yield
0.60%
Market Cap
$5.37 billion
Rev. per Employee
$461,371
loading...

Shawn Langlois is an editor and writer for MarketWatch in Los Angeles. Follow him on Twitter @slangwise.

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