Business


Boeing may not be the buy many think it is

SUNDAY, OCT. 25, 2009

Boeing’s (NYSE: BA) delayed 747-8 freighter program is overbudget and overdue. Late changes in plane design bear the blame for most of the $1 billion in charges Boeing will take on the project. “Challenging market conditions,” leading Boeing to build fewer planes, bear the rest. But this is just more of the same from Boeing – poor planning, execution and timing, which have combined to crash profits.

Pundits have wondered whether the 747-8 – unprofitable by Boeing’s own admission – is due for a cancellation. That would be bad news for 747-8 suppliers such as General Electric and Honeywell.

But that seems unlikely. With 105 orders in backlog as of the end of August, the 747-8 is worth some $31.5 billion in future revenue to Boeing. It may not upset that pot of gold over a trivial detail like whether it’s profitable.

But that shouldn’t be true for investors, who want their companies to turn profits.

The $1 billion charge Boeing takes in the third quarter will be big enough to essentially negate the Commercial Aircraft division’s $1.2 billion operating profit from the last calendar year.

Next time someone tells you that “Boeing’s a buy” because, “Hey, the forward P/E is only 12” – take that number with a grain of salt. Just like Boeing’s recent quarterly earnings, it’s subject to change.

Ask the Fool

Q: If you sell a stock that you hold in a Roth IRA for a loss, can you deduct the loss when you take money out of the Roth? You can deduct investing losses in regular accounts, but what about Roths? – F.T.M., online

A: Sorry. In general, you’re out of luck. While you pay no tax on ultimate Roth withdrawals, you also get no tax benefits from losses. Since the overall long-term trend of the market is upward, though, the Roth’s benefits tend to far outweigh the costs. Imagine, for example, investing $5,000 per year in your Roth and earning an average annual gain of 9 percent. In 25 years, you’d have more than $450,000, and you’d be able to take it all out tax-free! Learn more at www.fool.com/retirement/ ira/index.aspx.

Q: I am very new to the game of investing. What low-priced stocks do you recommend? I’ve been lucky with a few penny stocks and want to add a little at a time. – D.M., Ontario

A: First off, stop thinking of investing as a game. Sure, it can be exciting and a lot of fun, but it’s also serious business. It’s your hard-earned money, and your retirement, that you’re “playing” with.

If you haven’t lost money in penny stocks, you’re lucky indeed. They’re notoriously volatile and risky. Many beginners make the mistake of thinking that since they’re not rich, they should focus on stocks with low prices. Not true. Yes, $1,000 will buy you 5,000 shares of a 20-cent stock. But it stands a good chance of becoming a 5-cent stock. Instead, you might just buy 13 shares of a $75 stock, or 25 shares of a $40 stock. Learn more at www.fool.com/investing.

My dumbest investment

My dumbest investment is one I didn’t make. I could have bought shares of a bankrupt company that I know well for 2 cents per share. It went up 1,100 percent in three months this year. I know people who bought $10,000 worth, and I heard one person even bought $100,000 worth. It was just too risky for me. My next dumbest investment was a $500 push-button-start, self-propelled lawnmower that I could never get to start. I sold it for $100 at a garage sale years later. I have a $200 electric one now that needs almost no maintenance. – J.C.E., West Lafayette, Ind.

The Fool responds: Avoiding that bankrupt penny stock was actually a smart non-investment, not a dumb one. Bankrupt companies often leave investors with absolutely nothing. And penny stocks, even those tied to seemingly operational companies, are generally very risky, too. Being rather easily manipulated, they can often soar and crash within a few days or hours. That $100,000 might not have turned into a million dollars, but just enough to pay for a lawnmower.


 

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