Berkshire Hathaway Won't Confirm Buying Into Boeing

Summary

Warren Buffett refused to confirm buying into Boeing. We will find out soon enough.

Boeing is perfect for Berkshire to invest in. It's a mega-cap stock that has had terrible headlines, yet the business troubles are really temporary.

For a number of reasons, the crisis is cresting and about to be over. Buffett has only a small window to accumulate a significant level of shares before being reported.

My ROKU trade ended with little of the gains that I had from yesterday. If you took a position for a reason and that reason is gone, close the trade. Period, end of story.

Boeing (NYSE:BA) had strong trading volume from the beginning today. Only until later in the day was the statement coming out of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) refusing to confirm the rumors that BRK-B is making a significant investment in BA. Perhaps the rumors aren’t true, but I assume traders have been speculating based upon the increased volume, not only today but a number of days from mid-December that are over one-third of the daily volume. It's of course not just about trading volume and the fact that there has been a constant stream of negative news and the stock. There are characteristics of this company and the stock that are ideal for Warren Buffett. I see a very strong similarity to when Buffett invested in Apple (AAPL). At the time when Buffett himself got behind investing in AAPL in volume, many big analysts were announcing that “The days of Apple are over.” Apple was trading at half the current price and Buffett was loading up. What did AAPL have? A fantastic brand, an aspirational product, a loyal customer base, a technological moat (proprietary operating system and App Store), duopoly with Android, and huge cash flow. There are many similarities to BA. They are:

  • Huge moat, duopoly with Airbus (OTCPK:EADSF). There's no challenger for an alternative product.

  • Huge backlog for the MAX and other airliners.

  • Huge decades-long demographic demand in the developing world

  • Temporary trouble that by even the most bearish iBank analysts will be corrected by 2022, worst case 2023.

  • The majority of analysts have the MAX flying by year-end.

  • Just like when the market was against AAPL, it got no credit for Air Ppods and the Apple Watch, BA will announce new programs and models once this phase is over.

  • Once the 737 MAX gets the go ahead analysts will be able to quantify the costs and then “rediscover” the prodigious cash flow that BA has.

  • BA will reclaim the biggest commercial airline manufacturer crown.

The thing that I find so striking is that BA has held a relatively strong level through a huge barrage of bad news. Before Buffett refused to acknowledge the purchase, BA ran up to 344ish. Then came the announcement that BA accepted the condition that it will train every pilot on the simulator for the MAX. Finally, Longbow Securities gave BA a Sell with a 300 PT. Did BA lose all its gains? No. It held the 336ish level, and now it is back up to 339. Who is buying when everyone is selling? Classic Buffett. Forget Buffett, look at this sweet chart here.

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The blue horizontal line is a resistance level that was easily broken above and now acts as support. The left-most purple line marks out a double bottom with the right lower purple curve. A double bottom lends support to determining a bounce. The other purple marks on the right designate a classic inverted “head and shoulders.” When you take the chart formation along with the elevated volume buttresses a very strong argument for a sustained rally to perhaps old highs.

My Take: BA concession to train all MAX pilots on simulators is actually a good thing. It removes the final question and frankly the last barrier to getting an agreement with the FAA to get the plane approved for flying. BA is my single best big-cap idea for 2020. I would not be surprised BA hitting 500-plus by year-end. BA is the trade and investment of the day. That is, if you have room for some beta in your investment account, consider buying BA. If you are a trader with a window to March consider getting long now (note at the time that I finished this piece BA closed at 337.28 still up 3.5 points, while AAPL closed down).

WTI Down but E&P Names Up

Have you noticed that WTI is down but the big E&P names are up nicely? Occidental (OXY), ConocoPhillips (COP), EOG Resources (EOG), Diamondback (FANG), Pioneer Natural Resources (PXD) are all nicely up. This is in direct contrast to my long-term observation that the bigger XOP (exploration and production ETF) names made no real upward movement while WTI was reaching higher and higher. When they did move, I didn’t trust, and especially with this recent spike on the geopolitical front, where one could hardly call it a spike, I didn’t trust the rally. Now we have WTI dropping and these names rising, now that has my attention! I'm not ready to start speculating - yet. I want to see another few dollars falling off of WTI, and then see if these names start holding up. Let’s keep an eye out for these. I would dearly love to see energy take the stage, along with financials, then the rally will be very broad-based and could take us higher without being overbought.

Trade deficit Surprised to the Downside

The December trade deficit fell to 41.3B which is an 8% drop and the lowest since Oct 2016, last month also revised lower. Why? Oil! The two prior sections have a relationship with today’s trade deficit number. BA is a major exporter, and it isn’t exporting the MAX right now, and energy resources are being exported in ever greater numbers to make up for BA’s temporary shortfall, not only crude but NatGas in the form of LNG and pipelines to Mexico. Imagine what reinstating the MAX will do to this deficit? Trump knows this, they see the layoffs announcements in suppliers like Spirit Aerosystems. The FAA will relent and give an estimated date to restart the 737 MAX, and I believe they will do this very soon. In fact, while the current already manufactured planes soon being delivered and also the increased ag exports with phase 1 signed, we may actually see a deficit at decade lows. You know that Trump will be insufferable bragging about that. That means the president will press all the buttons he can to make that occasion for braggadocio to happen. Again, take a look at BA, I know there are a lot of skeptics out there. Perhaps it's time to rethink your objections to this storied name.

Perhaps it's time for me to rethink my bearish notions about the E&P names. Not yet, but soon.

My Trades: With Amazon (AMZN) announcing that their new Amazon Fire now has 40 million users, which is more than Roku Inc. (ROKU). I had to sell ROKU with only a paltry gain. I had an expiration of Jan. 27, and I was going to sell it this morning anyway. Once I saw the news I had to get out. I will get in again if ROKU falls to the prior support level of 131ish. I rolled the resulting funds into Crowdstrike (CRWD) adding to my prior option holding. I also sold my Lovesac (LOVE) for a small gain and took those funds off the table. I am still holding BA, and may extend the expiration out to March tomorrow. I am also holding SPLK, and HUBS.

Yes, I had very nice gains in ROKU, and I should have taken my profits yesterday. I got long ROKU with the expressed tactic of selling on the official open of CES 2020 today, and that proved to be one day too late. What I did not do is compound my error by holding on “because ROKU owed me.” I did not hang on because I had a relationship with “ROKU” and had to prove my loyalty. I admit it, there's an emotional connection to these trades. I grant you that some conviction is a good thing, but only when it is based on fact. If you are holding on because you hate admitting you were wrong or being a loser on a trade, that attitude will come up to bite you very hard, especially in the coming weeks. I said keep your trades on a tight leash this week, and that is what that means. Remember why you entered a trade, and once the trade meets that end, cut it.

Disclosure: I am/we are long BA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am also long on HUBS, SPLK, CRWD

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