When you get a 12-point swing from top to bottom on a $129 stock in a single reporting day as we got yesterday with Boeing (BA) -- five up and then 12 down, to be specific -- then you have to investigate further, because it means something's gone wrong in the reporting process in general or the stock in particular.
It typically means that someone has misled investors and created a false sense of positivity, meaning that there was hype that drove a stock up and then reality drove it down.
But that's not always the case, and it wasn't the case with Boeing. To be certain, the swing in Boeing's stock is a cautionary tale, not about Boeing itself but about the way that analysts perceive Boeing, which is what's leading to downgrades today for this fabulous company.
First, when Boeing reported early morning yesterday, it raised its guidance fairly substantially. This was important because the previous quarter was considered a very big disappointment because there was no similar guide. You go look at the headlines and they are uniformly positive on every line item and truly seemed to rebut cash flow worries and tepid guidance from the previous quarter. Investors first breathed a sigh of relief and then furiously ran the stock up five bucks from the $129 level in premarket trading right into the conference call.
But it all unraveled a few minutes into the granularity of the numbers and the subsequent questions, neither of which could be, or arguably should be, reflected in the release.
Going into the quarter, the stock had experienced a very nice rally from a low of $120 where it sat after last quarter's disappointment. The run had come because the airline stocks experienced a dramatic increase in price as the Ebola panic subsided. That's important because these two trade with each other. One look at how Boeing's stock traded during the SARS epidemic tells you why it was vital to get the panic under control. From the outbreak of SARS, which triggered a 40% decline in air traffic from the 18% of the world hardest hit by it, Asia, Boeing's stock fell from $45 to $27. When the epidemic got under control, the stock recovered that much and then some. So the rally was real and substantial.
However, when we got into the nitty-gritty of the number raise, it was pretty clear that it all came from a wide range of Boeing planes, mostly older versions, but it very specifically did NOT come from the 787. In fact, we learned in the Q&A, the 787, yep, the problem-filled Dreamliner, was still not making money. Boeing apparently is still losing money, some would say gobs of money, on every single plane although that's a number that's harder to calculate than the analysts seem to think.
Didn't matter.
The stock got crushed and repealed more than half of the post-Ebola-panic run-up.
I am sure that the Boeing people were somewhat surprised at the action in the stock. Remember, everything else was pretty darned great for Boeing and the company assured analysts that 2015 would be the year that the Dreamliner made money.
But it was almost as if Boeing dissembled in its release to hear the firestorm of questions about this plane.
Which brings me to the crux of the issue. I don't know what Boeing could have done "more right," so to speak, when it reported. Was the company supposed to say "earnings rose DESPITE Dreamliner?" Was it supposed to flag how the plane still is in deficit, something that would have been a little disingenuous itself, because in the end the earnings and the cash flow are the REAL earnings, despite how they are made?
I think the answer lies in the process. I have said over and over again that if you trade a stock without knowing the innards of the quarter then you run the risk of being annihilated by the commentary. That was exactly the case with Boeing.
In other words, the 12-point swing down wasn't the fault of Boeing's management. You can blame them for not getting the Dreamliner right, for certain, but you can blame the process of gun-jumping for the losses. You just can't presume anything with a company with as many moving parts as Boeing, yet people did, and they paid a really big price. They are doing so again today.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.