Finding Value in Fallen Angels: GE and Boeing

05/19/2020 5:00 am EST


Jim Powell

Principal Analyst, Global Changes & Opportunities Report

Our fallen angels portfolio holdings are struggling as a result of Covid-19, but their recoveries are still on the way, asserts Jim Powell, editor of Global Changes & Opportunities Report.

Boeing (BA) has been working on a software solution to its flight safety problem with its 737 Max aircraft that have been grounded since March 2019. By all accounts, the FAA is getting ready to recertify the “Max” in time for the summer travel season.

However, there may not be a summer travel season this year. Even if the travel bans are lifted, I doubt that many people will be confident enough that the coronavirus threat is over to risk placing themselves shoulder to shoulder on an airplane for several hours.

The bottom line for Boeing is, a wave of new orders for the 737 Max seems unlikely anytime soon. In response, the company plans to cut its workforce 10%. The setback pushed Boeing’s stock even lower – and even more attractive for long-term investors.

General Electric (GE) is in a similar position as Boeing. Before the coronavirus showed up, the company was making good progress towards its turnaround.

As I first reported in August 2019, the company’s new CEO, Larry Culp, was ridding GE of underperforming businesses, and was pouring the assets into its successful operations. Debt was also being paid down. The recovery was going as expected for GE.

However, 2020 is proving to be another story. GE’s efficient LEAP jet engines for the 737-Max aren’t flying off the shelf. The company’s aviation division is in a holding pattern.

With oil prices on the floor, GE’s Power and Renewable Energy businesses are also struggling. Of course, GE’s financing operations are sidelined. Only GE’s Healthcare operations are likely to make a profit this year.

However, (this is important) when the economy is reopened much of what has been sidetracked will begin to recover — including orders for GE’s products and services. The company produces a lot of what the economy will need as it regains its health.

The bottom line is, I think GE is still a top fallen angel with an excellent long-term outlook. The coronavirus setback made the stock even more attractive for patient accounts.

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