Boeing expects to ride wave of increased 737 production
Not long ago, the Boeing (NYSE: BA) story was all about the 787. “The most successful launch of a new commercial airplane in Boeing’s history” was going to secure decades of growth.
But lately, it’s been looking like Boeing’s real ace in the hole is the 737. It recently announced two blockbuster sales weeks, featuring 134 new aircraft sold, all of them 737s. That’s more planes than it sold in all of last quarter. (General Electric, United Technologies and Honeywell owe Boeing a thank-you note for all the new business they’ll be doing, providing plane parts.)
There may be even more good news coming down the runway. Three times in the past six months, Boeing has upped the production rate on its 737, either in response to or in anticipation of new orders (and perhaps a little of both).
With Southwest Airlines doing its part to shore up domestic demand by buying AirTran, a second all-Boeing flier, Boeing may try to capitalize on its new production scale by going after its long-sought Ryanair contract with seriously aggressive pricing. Should Boeing win that 200-plane contract, it would boost the quarter’s orders significantly and would almost certainly compel Boeing to announce another increase in its production rate.
Boeing may be taking flight.
Ask the Fool
Q: Are stock buybacks good or bad? – H.S., St. Augustine, Fla.
A: Stock buybacks, where companies buy back and essentially retire some of their own stock, can be a good way to reward shareholders. That’s because fewer shares remain and each is therefore worth more.
Consider this extreme example: If you own 10 of a company’s 100 shares, you own 10 percent, but if it buys back 50 shares, your 10 now make up 20 percent of the company.
Remember, though, that valuable dollars are spent buying back shares, so companies should be doing so only when the shares are deemed undervalued. If management is buying at bargain prices and retiring shares, it’s creating good value for shareholders. If it’s buying at inflated prices, that money would be better spent paying out a dividend, paying down debt, being reinvested in the business, or in a number of more profitable ways.
Q: What’s the IRS’ “wash sale” rule? – N.W., Goshen, Ind.
A: Under the IRS’ “wash sale” rule, if you sell a stock for a loss and buy it back within 30 days, the loss cannot be claimed for tax purposes. Don’t worry, though – the loss isn’t lost forever.
You do get to claim it, just not now. The disallowed loss is added to the cost of the repurchased stock, and it’s claimed when the stock is finally sold in a non-wash-sale way. It’s often best to simply avoid the rules entirely, though, by always waiting 31 days before jumping back into any stock.
Learn more about the wash sale rule and other tax issues for free at www.fool.com/taxes, and from the horse’s mouth, at www.irs.gov.
In 2008, I received a glossy, well-done brochure for a stock, noting that Bill Gates was invested in it. I bought 500 shares for $2.56 apiece, but a month later it was trading at 23 cents. I felt I had been taken, but I bought thousands more shares as the stock fell further. – H.R., via e-mail
The Fool responds: Consider running away quickly from any investment that’s pushed on you via a glossy brochure. Bill Gates may or may not have owned some shares, but even if he did, that’s no guarantee of their quality. Even smart people make poor investments on occasion. And he may have bought only 100 shares, perhaps for some reason other than a strong faith in the company’s potential.
In this case, the company actually sent a letter to someone accused of stock manipulation by the SEC, asking him to cease and desist mailing those brochures.
Stocks trading for less than $5 per share can be very risky, as they’re easily manipulated by ne’er-do-wells. It’s also risky to buy more shares of a fallen stock, as many stocks fall for good reason.