It was another quiet week on the market. Inflation reports were mixed – the consumer price index readings were a little higher than expected, the producer price index a little lower. Earnings season kicked off with bank earnings and Delta airlines as the headliners, but it’s too early for major impacts. Stocks are back to where they started the year, more or less.

While earnings season is always an exciting time, we’re not quite in the heart of it. I also don’t have a lot of wide-lens views on earnings. It will be interesting to see what companies are saying on prices and inflation, and there are plenty of individual companies who have their own nuances to track. I’m sure stories will come out of it that are worth talking about or might lead to investing ideas. But that’s just a rule of thumb for earnings, not a ‘take’.

I talked about read-through effects last week. A few stories this week got me thinking in the opposite direction. I’ll start with Boeing’s bad news, and then get to a couple other stories. Through those, we’ll get to the power of not having a take.

Boeing’s Bad News Week, Year, Three Years, Five Years….

Boeing had a bad week, as a door plug blew out of a plane in mid-flight. The stock dropped 12.5% for the week. It is up 1.6% over the last year, 129% since the covid bottom on March 20^th, 2020, and down 36.5% in the last five years.

I’ve never owned shares in Boeing, or followed it super closely. At a former job, a friend and I did a 3-part podcast series on Boeing in the wake of the second Max 737 crash. I’ve been aware of the stock from both professional and non-professional friends investing in it over the years as well.

The 737 Max. Source: boeing.com

Of course, Boeing is a captain of industry in the US, and part of a global duopoly for commercial airplanes with Airbus, based in France. It is often a stand-in for the travel sector, along with a couple other stocks I’ll mention in a second.

Boeing obviously has a great market position, even though 2023 will be the 5^th straight year of losses for the company, earnings wise. Forward looking, there’s a simple case for the stock. It’s earned $4.6B in free cash flow the last 12 months, and is targeting $10B a year in free cash flow by 2025 and 2026. That would be a big jump, but also less than it produced in 2017 and 2018. Get to $10B by 2026, give it a 20x multiple, and discount that back to 2024 at 10%, and the shares should be $273, 25% higher. You can argue 20x is too low for a leader. (You can also argue that $39B of net debt, or ~$64.3/share, should be accounted for).

I can understand the appeal. I would argue, though, that Boeing is one of those 25 or 50 stocks that investors fixate on, without considering what else is out there. And if you look a little harder, you might find more interesting things.

How Boeing Stock Has Recovered

Let’s say that Boeing was considered a proxy for the fall-off in travel during Covid, and thus a recovery play. From what I can recall of that popular theme, most people talked about Boeing, airlines, and cruise lines¹. The stand-ins for those industries are Delta Airlines and Carnival Cruise Lines, each leaders in their field.

Go back to the covid bottom. Boeing outperforms the S&P 500 from that point, 129% to 121%. It outperforms all the major US airlines, with Delta the leader at 81%. It outperforms all the major cruise lines except Royal Caribbean, which has had a 410% run from covid bottom. Boeing lags Airbus over that period, but was even or ahead until last week. It would seem Boeing was a good travel recovery play.

Favorable Cutoff Point

Two things, though. One, the time frame is quite favorable to Boeing. It’s not totally artificial: travel was especially affected by covid, and while we didn’t know when bottom was hit, the bill passed by Congress a week later at least gave us a sign the worst would not occur. Not that I did a ton of buying then.

Boeing did very well in the year following the bottom. But in just about any other time frame – the last five years, the last three years, the last year – Boeing performed worse. The stock had a huge rally in the year to March 2021, and has been a bad stock otherwise since the second Max crash happened in 2019.

More to Travel Than Three Industries

The other thing is, there are less popular, more profitable ways to invest in travel.

Running down a list of industries, with total return performance since March 20th, 2020 (with a couple exceptions):  

• Online travel agents – Booking (197%), Expedia (205%), and Travelzoo (166%) all outperformed Boeing, with Trip.com (64%), which is based in China, lagging, and Trip advisor (23%), often lumped in with them, doing a good deal worse.
• Aircraft lessors, which buy from Boeing to lease to airlines, are up 301% (AER) and 158% (AL), and FLY was up ~175% from Covid bottom at its takeout price in 2021.
• Airport companies outperformed (OMAB – 283%, PAC 289%, ASR 266%, CAAP 836%), though a couple European ones (Aena – 83%, ADP – 65%) did not.
• RV companies did much better – Winnebago at 209%, Thor at 240%, Camping World at 650%, LCII at 128% as the laggard is in line with Boeing.

I’m keying in on this because travel is one of my favorite sectors to follow. My point is not you should have listened to me – I only bought a couple of these stocks near bottom, and then not in huge quantities. It is also not that you have to know every stock in a sector and compare them all so that you can pick the best; that’s a very high bar to set.

My point is just that you don’t have to limit yourself to stocks everyone knows about. Boeing has a lot of moving parts. The simplest part of the story is that it has a duopoly, it used to make a lot of money before, and if it gets close to that again, it could be attractive. The harder parts are all the problems, what it means about Boeing’s management and culture, and the debt Boeing has incurred over this time. You may have very good reason to buy it here, I have no interest in dissuading you. I just encourage people to think a little further beyond headline stories before diving into a story.

Most Valuable Companies in the World And…Bitcoin

There are two other stories that epitomize headline focus. One is the approval of bitcoin ETFs. Whenever I tell someone I work in investing, I can expect them to ask me what I think about bitcoin.

Because they don’t like the answer “I don’t really know”, and because I worry about people jumping in due to FOMO, I usually say that there’s nothing to bitcoin, and no reason for bitcoin to go up or down. At best, it’s gold, which I also don’t understand. That doesn’t mean I bet against it. But I don’t “have” to have an opinion, and I don’t “have” to own anything.

The other story is Microsoft passing Apple as biggest company in the world by market capitalization².  This is a fun story to talk about. I’ve worked in financial media, and I have no interest in criticizing people for reporting on it. But stocks is not sports. You don’t need to root for your teams and you don’t need to care who the champs are. Microsoft and Apple compete in some areas, not in others, and both have great and expensive businesses. Whether one is more valuable than another isn’t important. Whether they are good buys or holds for one’s portfolio now is.

This can go for the whole Magnificent 7 as well. It is possible to have success while ignoring these companies. It’s also possible to learn a lot from them as businesses and stocks. They have offered great opportunities to buy – Apple in the mid-2010s, Meta at the end of 2022. They will likely offer opportunities in the future. But, they are also among the most followed stocks in the world. Finding a unique reason to buy, or a unique strategy to consider adding them to your portfolio, will be hard.

Turning Over Rocks

One of the big secrets of investing is that a lot of the time, you don’t do a lot. It takes a lot of work to be a successful investor, but the work doesn’t connect directly to how your stocks do today. As I told my brother, once my wrestling coach, you can’t coach up or yell at your stocks for them to go higher.

Both media and the financial industry has incentives to get you to act more. The more things are moving, the better for their businesses. That’s just the nature of it.

Seth Klarman, renowned value investor and fund manager of the Baupost Group, wrote in his hard to find³ Margin of Safety that, “In investing, there are times when the best thing to do is nothing at all.” Following headline stories is useful, I think, both for the read-through effects I mentioned last week and to understand market sentiment. We can also learn from live case studies.

That doesn’t mean we have to stop and restrict ourselves to that universe. There are more stocks out there. The goal is not to invest in stocks that are in the headlines, but stocks that will earn headlines in the future. Or stocks that are doing perfectly fine out of the spotlight.

Interested in more from Middle Coast Investing? Or in talking to us? Get in touch.

Disclosure: Middle Coast Investing clients and portfolios have long positions in AER, OMAB, PAC, BKNG, and AAPL. Positions may change at any time without notice. Nothing in this post is investment advice.

1. No doubt in part because they were most talked about in connection to governmental support, but I think they’re still where most people default to when thinking about travel stocks. ↩︎
2. As of Friday’s close, I have Apple a smidge higher in market capitalization, and ~$25B higher in enterprise value, reflecting it having more net debt. ↩︎
3. The original edition is famously expensive, but PDF versions are available if you look around. I wrote a review on the book several years ago. ↩︎