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  • Martin Sosnoff

Crying Myself Asleep Over Boeing

Boeing’s latest self-inflicted wound on its 737’s so far has left its analysts' numb and silent. Let’s hope Boeing doesn’t land up valued at 10 times earnings, like a manufacturer of T-shirts and men’s shorts.


I had sold Boeing out of our portfolios months ago, but retained my block. I’m allergic to paying capital gains taxes. Decades ago, I learned to hang in like Warren Buffett. I think in decades, not days, weeks and months.


My tenure with Boeing dates back to 1961, the onset of the jet age with Boeing’s transcontinental 707. But, Douglas Aircraft was already floundering then with its DC9 which they had underpriced. Does anybody but me remember that shortly later Douglas declared bankruptcy. They had plenty of orders, but badly underpriced their aircraft, took hundreds of orders but couldn’t fulfill them profitably. Too much business drove them out. 

 

Back in 1961, I was then visiting Boeing’s factory in Renton. Management had issued me a bicycle and directed me onto their factory assembly floor.  Everyone was free to answer my questions. Assemblers told me that for the first time they were using stainless steel fasteners on fuselages, successfully.


Their provider was a Connecticut machine tool operator, Helicoil, run by a German machinist specialist. After my meeting, I took a huge position and went to the moon.  But, I still retain a 10,000 share block of Boeing.  To hell with funding the IRS


Let economists kvetch over soft landings for our GDP. For money managers, soft landings are academic unless your stock picking is on the money. 


You can’t do this holding onto a textbook or a slide rule. My latest setback was adding to Boeing a day before one of their 737’s blew a hole in its fuselage.


Money managers and analysts point to Boeing's exceptional growth and cash flow years ahead. But,  blown holes in aircraft in flight is serious business, and likely to pressure Boeing's price earnings ratio for years.


For many of us who manage money,  believing in a soft landing scenario for the market is critical. No spike for interest rates coming. Oil futures remain friendless. The economy has already sustained a spike in wage settlements. It’s enough.


All this gets reflected in the heady price-earnings ratio for the market. It approximates 20 times forward 12-month earnings power. 


Wars, inflation, a punishing FRB, even a recession in real estate can be crunch time for the market. I delved back to my historic chart book to assess longevity for high price-earnings ratios.


 But, first what was it like playing aerospace and airline properties at the onset of the jet age in 1961? There was a bunch of convertibles available then. Namely United Aircraft, Boeing, Eastern Airline and others. Money brokers did finance me at 10 points down, but marked the market, daily. Before being called, much of this paper soared to 300 to 400 and I cashed in. 


I wasn’t smart enough to expand my horizon. Shoulda been buying up office buildings on Bishop Street in Honolulu. It was transformed from a quiet backwater enclave to a throbbing metropolis. I’m sure Sam Zell was on site wheeling and dealing. 


And yet I still can’t find a good reason to be more than 50% in equities. This was the wrong call for 2023. The Great Humbler still alive and kicking. Made me look like an old maid. 



Disbelief in Growth Surfaced in 2013-’14



What can happen to a stock or industry group when the market falls out of love with it was experienced in growth stocks in 2013-2014. Discounts ranged from 10% to 35% for Hewlett Packard.


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