News and analysis

BA shares are 50% off their peak values which were reached at the beginning of 2020. But they have been moving upwards over the last two months, beating the broad market in terms of returns. Its stock price has added about 40% since the beginning of October. This upside is closely related to management’s positive forecast of the Free Cash Flow (FCF). FCF was negative at -$4.4 billion in 2021, while this year it is expected to reach $1.5-2 billion on the positive side.  The company is planning to increase its cash generation to $10 billion by 2025. Boeing considers that its existing demand is strong enough to increase production to 50 commercial aircrafts a month, even if deliveries to China are excluded. The is a very bullish signal for BA stocks.

Wide-body aircrafts like Boeing 787 are expected to dominate the market, while its price could exceed narrow-bodied aircrafts by 200%. Boeing received orders to build 106 narrow-bodied aircrafts and 16 wide-body aircrafts in October for $7.9 billion. During the same month last year there were only ten orders, three of which were later canceled  so  the final net value of orders was $360 million. This year Boeing received orders worth $40.1 billion by the end of October, while the company had only $24.8 billion worth of orders for the same period last year. The number of orders improved dramatically because of the Boeing 737 MAX’s return to the sky.

On the negative side the company is facing a staggered schedule of production that is mostly linked to the last month of the quarter when most planes are completed on paper to present better quarterly reports. This year Boeing produced 363 commercial aircrafts for $25 billion up until the end of October compared to 268 aircrafts worth $20.5 billion for the same period last year. So, it is seemingly a positive upside. But, when we dive into details, we see that 51 aircrafts were produced in September, while only 35 were finished in October. So, the production schedule could be compared to a jigsaw with uneven figures.

During the last two years of the pandemic, Boeing started construction of many aircrafts that now need some minor alterations to claim the aircrafts ready for delivery. Thus, Wall Street is not exaggerating about the number of aircrafts produced. Quite the opposite, more stable production is needed to convince investors of the steady recovery path, that would boost aircraft maker stock prices to prepandemic levels.

Apple stocks have had a very impressive performance amid a clearly bearish market while losing only 20% of their peak values. However, investors should be prepared for elevated turbulence in these stocks considering the situation in China.

China’s zero-tolerance policy to COVID-19 led to a massive exit of employees from Zhengzhou city plant amid fears over tightening curbs. Over 200,000 workers are rumoured to have left the plant. If this is true, the production of iPhone 14 Pro and iPhone 14 Pro Max would be very complicated with no clear outlook on when it could be resumed. The delivery delay shown on Apple’s website has already hit six weeks. Americans who ordered the brand new IPhone for Thanksgiving Day will only receive it for Christmas now. Meanwhile the last two months of the year are very valuable for any mass-market company in terms of holiday sales.

Apple is planning to move iPhone production to India. But that would require years. The company has already invested $75 billion in the Chinese market and now this investment may be at risk as the ruling Communist party in China may put a local ban on the sale of Apple products. China is the third largest market for Apple with the United States at the first place with $153 billion and Europe at the second with $95 billion. Wall Street is expecting Apple’s earning to go up by five percent over the next three years. So, any troubles with production in China may alter these forecasts. 

Tesla is unique in terms of its share price. TSLA stocks rallied long before the company established the production of viable and steady electric vehicles (EV) and also thanks to the reputation of its leader Elon Musk. It is true that Tesla sometimes misses its mark and deadlines to launch new models and products but it seems that the crowd invests in Tesla not for its hit-and-run strategy but because of their belief in Musk’s ability to transform our everyday life in the long run.

Tesla stocks are trading 60% off their peak prices thanks to the market correction that has been squeezing the market since the end of 2021. Nevertheless, market participants are discussing some drivers that may hit the company’s business. For example, lower gasoline prices may hamper EV sales. It is true that Americans are now paying around $3.6 per gallon compared to $5 a few months ago. But this driver is largely exaggerated as gasoline prices is not the major reason for someone to buy an electric car. A move towards green energy and minimising carbon footprints is not a short term affair, but a sustainable long-term trend that is supported by governments, including the United States and China. Besides. oil producers forecast global demand will outweigh the supply side over the coming years while also betting on higher prices of fuel. So, no short-term movements of gasoline prices would affect EV buyers, as well as TSLA stock buyers.

The more serious issue is the declining prices for Tesla’s second-hand EVs. Tesla used cars are now 15% cheaper after a summer peak. If this downtrend is sustained pressure on sales of new model could mount. Tesla is planning to increase EV’s quarterly production to 500,000 by the end of 2022 and it is likely to increase production further after launching new production facilities in Berlin and Austin. But Tesla is not a mass market. So, Tesla fans are unlikely to pay much more to get a brand-new Tesla.

Shell stocks are trading 8% off their 2022 peak prices. The company has recently reported strong financial results in Q3 2022 and announced that its dividend could go up by 15% in the near future. The company’s management spent over $6 billion for buy back operations during the third quarter and is going to spend another $4 billion on this by the end of 2022. If the company continues to buy back its own shares with this pace over the next two quarters, Shell free float could decrease by 10%. Its shares are now trading at $56 per share, but management’s efforts may push the price to $65, above pre pandemic levels.

The company continues to invest in oil and gas exploration and production. Shell invested $18 billion in traditional energies, well ahead of the $2.4 billion investment in green energy. This is a positive sign considering the current market situation. A faster move towards green energy on a global scale is seen unjustified. More governments are now betting on traditional carbon energy resources and are ready to support such efforts.

Shell is thought to accumulate $33 billion in free cash flow, sending $7 billion to dividend. The other $26 billion will be distributed to buy back operations and debt redemptions. So, the company is seen to be very strong at the moment.

Wells Fargo published research saying the investments in the oil and gas sector is one of the best decisions to be made during high inflation periods. Oil prices have soared by 40% since 2000, well above the return from many S&P 500 listed companies. The demand for oil is not falling dramatically despite high prices. Many developing countries may increase the demand in the longer term considering demographic and economic factors such as rising GDP. More oil is expected to be used for electricity generation.