Flying Through the Turbulence

01/07/2008 12:00 am EST


Richard Band

Editor, Profitable Investing

Richard Band, editor of Richard Band's Profitable Investing, says volatility will continue in 2008-but he finds a stock he thinks will navigate it well.

I think 2008 will present some real challenges for global investors. The economic slowdown under way in the United States may soon begin to spread overseas as Americans gobble up fewer imported goods.

Furthermore, the dollar-after falling precipitously for the past six years-looks ready for a respite. In late November, two major European magazines simultaneously ran cover stories depicting the dollar going down in flames. This is the kind of one-sided sentiment that typically signals an important market bottom.

While a jump of 5%-10% in the dollar's value against, say, the euro wouldn't dent the competitive position of, say, a Boeing (NYSE: BA), it would probably wipe out any advantage in holding most European stocks during the New Year. (A dollar snapback is less of a concern for Asian or Latin American stocks because currencies in those parts of the world haven't appreciated drastically against the greenback.)

Bottom line: I continue to watch for opportunities to take some of our international money off the table. I'm still buying selectively in foreign markets, but on balance, I'm a seller.

In recent months, the plunging dollar has opened up a sizable pricing advantage for America's premier aircraft manufacturer, driving Airbus, Boeing's European archrival, to the wall. While I expect the dollar to recover somewhat against the euro in 2008, BA should enjoy a currency tailwind for most of the year, and possibly into 2009.

The main risk with Boeing right now is that delivery of the company's next blockbuster
product-the light, energy-efficient 787 Dreamliner-might be delayed (again). Currently, BA plans to begin shipments in December 2008.

Still, I'm willing to accept that risk because (1) Boeing has the financial muscle to push the Dreamliner through to the finish line and (2) the stock is a bargain. By 2011 or 2012, when Boeing's new-product cycle hits full stride, the company could be earning upwards of $10 per share. Given a modest P/E ratio of 15x, the shares would lift off to $150 (from a recent price below $86).

So, buy BA at $92 or less. Boeing pays a small dividend (current yield: 1.8%), but is also in the midst of an energetic program, announced in October, to buy back $7 billion of its shares. BA has already repurchased $8 billion worth of stock since 2004.

Meanwhile, however, we must be prepared for a lot of volatility. The vicious sell-offs we saw in July/August and October/November were probably not the last. Stay alert and flexible. There's a happy ending to the story.

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