There aren't any players with a bigger impact on themarket
than hedge funds.
Not only are hedge funds thought leaders, employing thousands
of forensicanalysts to sniff out the bestinvestment
opportunities, they are also huge, frequently carrying
multibillion-dollar positions that can single-handedly move a
That's why hedge funds have gained a cult following, watched
closely by investors trying togain insight into what the biggest
players on the Street are up to. A signal that ahedge fund or the
entire industry is hot for a newstock can sendshares soaring.
And that's exactly what is happening to the most popular stock
among hedge funds during the first quarter. This market leader
has been on a tear, up 36% on theyear after hedge funds poured
$1.6 billion into its shares in the first quarter.
I'm talking about
, one of the largest aircraft and defense manufacturers in the
world. Boeing was the No. 1 stock for hedge funds during the
first quarter. Recent13F filings show that hedge funds poured
$1.6 billion into shares in just the first three months of the
But if you missed those hedge fund-drivengains , don't worry. As
an industry leader, Boeing is in position tocash in on the
long-term growth in global air travel and defense spending.
Analysts are expecting a massive boom in global air travel in the
next 20 years, with air traffic projected to grow 5% annually.
For airliners to meet growing demand for air travel and counter
rising fuel prices, Boeing is expecting U.S. and Canadian
airliners to invest $700 billion in new aircraft in the next 20
years. As a global leader in aircraft design and technology,
Boeing is perfectly positioned to absorb new orders and
increaserevenue as airlines update their fleets.
Boeing has already made a big move to cash in on thebullish trend
expected in air travel in the next 20 years. The company's
Dreamliner is considered a game-changer, scoring high in comfort,
capacity and fuel efficiency. Although the Dreamliner has been
plagued by production delays and a nasty grounding over faulty
batteries, Boeing expects the Dreamliner to be a major source of
revenue in the years ahead.
In addition to its aircraft division, Boeing is also a leading
defense contractor. That sector accounts for about 50% of its
annual revenue. Global defense spending remains under pressure
from austerity measures and hugefiscal deficits , so Boeing is
focusing its defense efforts on high-growth segments of the
market such as cybersecurity, intelligence, surveillance and
Theseinvestments could help Boeing evolve with the dynamic
defense contractor market, but in the meantime, the company's
core defense business still looks strong, with a recordbacklog
totaling $392 billion.
Boeingwill also continue to benefit from its strong financial
profile. Cash and equivalents of $12 billion will give the
company plenty of flexibility to invest in new technology or
acquire competitors. Withlong-term debt of just $8 billion,
Boeing has plenty of room to borrow and increaseoperating
High barriers to entrance will also work in Boeing's favor. High
startup costs and patented technologies make it very difficult
for less developed companies to compete with Boeing's size and
scale. (These are all reasons why I'd seriously consider giving
Boeing the "Forever Stock " label my colleague Elliott Gue uses
for picks in his
Top 10 Stocks
With plenty of good news in hand, analysts are bullish on Boeing,
calling forearnings growth of 26% in 2013 and 14% in 2014.
Analysts expect Boeing to grow earnings 10% annually for the next
Risks to Consider:
With governments around the world struggling with too
muchdebt and fiscal austerity, total defense spending has slowed
in the past few years. Although Boeing is focused on growth
segments of the defense market, fiscal austerity poses a threat
to defense revenue growth.
Action to Take -->
Hedge funds poured $1.6 billion into Boeing in the first quarter,
making it the top pick of the group. But in spite of that huge
inflow and big gains in 2013, Boeing still looksundervalued ,
trading with a forwardP/E (price-to-earnings) ratio of 15, below
its 10-year average of 18. If Boeing returned to its historical
valuation, shares could jump 20%. But long-term the shares have
even moreupside with exposure to growth in global air travel.
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