The aviation industry was hit hard when travel restrictions kicked in. Revenue dropped by over 75 percent for the bulk of 2020, and struggling carriers had to make extreme cuts and seek bailouts to maintain expenses. General Electric Company (NYSE:GE) and Boeing Co (NYSE:BA) are two suppliers that felt the squeeze too.
But now that vaccines are rolling out and the economy is on its way to recovery, airlines are recovering. That means their suppliers are too, and it’s time to analyze which is the better investment between General Electric vs Boeing stock.
Each company has a positive outlook for the next fiscal year after being battered during the worst of the lockdowns. But it’s not exactly clear skies ahead – as airline vendors, these companies will take longer than the airlines themselves to recover. That’s because the airlines need money from passengers to spend on more parts and planes (creating a lag time before they invest).
Of course, we don’t know exactly when or how the industry will fully recover. Travel restrictions are still widespread as the vaccine rolls out, and there is no telling whether the newly built virtual economy can support travel beyond the immediate need to shake the pandemic quarantines.
In light of this, what is the outlook for General Electric and Boeing?
The Bull Case for General Electric
A big thing General Electric has going for it is its management team. The company was already struggling before COVID-19, and the shutdown may have given it a lifeline more than anything. CEO Larry Culp was left with a mess, but he turned the ship around using a lean management style.
GE is creating high margin revenues while also paying down debt. It’s working through unfavorable contracts. This is a two-sided strategy that means good things for investors seeking exposure to aviation but also a larger market.
That’s because General Electric is involved in a lot of different verticals. Besides airlines, the company has enterprise and governmental clients in health care, renewable energy, and more.
It’s continuing to generate single-digit revenue growth in each of those two divisions mentioned, and that could make it a safe way to preserve your investment while growing marginally today’s prices.
Although it has already risen a lot, there’s still room to go. The company released guidance for up to $4.5 billion in 2021, which would beat Wall Street’s $2.8 billion forecasts. Much of this is due to Culp’s cost-cutting strategies. However, there are still risks involved.
The Bear Case for General Electric
One problem facing GE is that the aviation industry’s future is still unclear.
While the company is growing and making deals, it still faces a lot of uncertainty about how the economy will recover. And because it already grew over the past year through a weak economy, the potential rewards are outweighed by the risks.
The company faces possible shrinkage in engine aftermarket sales due to COVID-related market factors. And markets like renewable energy and health care have a lot of competition that poses a threat to market share also.
Investors who were holding several years ago are still licking their wounds. Executive leadership may have switched out, but the after-taste of poor quality management could still be lingering among investors. All this combines to give bears reason to avoid the stock, but is Boeing a better bet?
Why Buy Boeing Stock?
Like GE, Boeing’s woes started before the coronavirus pandemic. The company’s 737 MAX airplanes became the center of a scandal in the year leading up to the outbreak. And when the virus spread and airports were shut down, it almost became a blessing in disguise to buy time to fix those legacy issues.
It wasn’t long before Boeing’s airline partners were helping fix passengers’ collective fears about traveling via airplane.
The company’s prospects aren’t entirely attached to commercial aviation. It also has an aerospace division to help pick up the financial burden. And its global services and capital divisions are going strong too.
What Boeing needs is more airplane orders – flights being grounded around the world led to an oversupply of its planes. In response, many of these companies slowed or stopped orders for up to the next five years. This puts Boeing in a precarious position, as there’s no telling how many orders it will get in the future.
This brings up the risks inherent to buying Boeing at today’s prices.
Risks of Investing in Boeing
Boeing’s production rates have stalled across the board, so it barely matters that the 737 MAX has approval to go back in the air. The biggest problem it has is that rival Airbus is pumping out its A320 NEO aircraft to meet the same market as the 737 MAX (but it too has problems).
Over a year of negative press hit Boeing hard while it struggles to maintain its market share. Carriers may be less inclined to be associated with the stigma and Boeing’s previous management issues. Its other planes have sagging sales too, and design modifications are necessary to meet the expectations of global regulators.
Although it has exposure in other markets, Boeing is heavily into aviation. This cyclical industry has at least a five-year runway before things are projected to be normal. Of course, that assumes that it ever returns to the way things were – a new normal could become the norm.
Between the two companies, Boeing has the most potential upside but a lot of risks involved.
General Electric vs Boeing Stock: Conclusion
General Electric and Boeing are two airplane manufacturers who have a lot to gain from economic recovery. Each company suffered through the pandemic when airlines were shut down around the country and stopped ordering new planes.
However, airline travel is picking up, and these stocks are growing in value with it. This has investors looking to jump in before takeoff. Much of the gain is already made, but GE has a longer runway and more growth prospects ahead.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.