2 Stocks for a Long-Term Investing Watchlist
The Dow Jones Industrial Average was trading up 53 points by midafternoon after the latest initial jobless claim numbers came in higher than expected and another report showed orders for durable goods declining last month. Overall, durable goods orders fell 1% in January after dipping 5.3% in December; suggesting that manufacturing has weakened in recent months. Much of the decline was blamed on the highly volatile transportation category.
Motley Fool One analyst Jason Moser offers sound advice regarding economic data.
"Economic data can be useful as it offers up a snapshot in time. But investors should keep a couple of things in mind: most of it is backward-looking and it's almost always revised to some degree." Moser told me, "Investing is a forward-looking exercise and investors that take the longer view needn't worry too much about the day to day noise of the overall economy. In fact they should view it as a window to potential opportunities."
With that in mind, here are two companies solving current problems while focusing on long-term success.
One of the Dow's largest components, Boeing , is doing its part to tackle a major challenge. Many investors overlook Boeing's large pension obligations which have spiked in recent years and even forced the company to report "core" earnings, in addition to its generally accepted accounting figures figures, to remove some of its vast pension expenses and give a clearer picture of the company's business health.
Graph by author. Source: Boeing's annual SEC filings.
Boeing's pension liability is essentially the projection of what it will owe retired employees in the future, minus its current pension plan assets. Boeing's pension obligation stands at $10.4 billion, which is even higher than its total consolidated debt figure of $9.6 billion.
Discount rates, which are tied to interest rates, have been sitting near record lows; that forces companies to lower their expected rate of return on pension fund assets, meaning Boeing has to make up the difference with larger contributions into the account. As those discount rates rise slowly Boeing's pension obligation should decline -- this will happen even faster as the airplane maker continues to increase its contributions into its pension fund.
In addition to those two factors, Boeing is fixing the root cause of its pension woes and leveraging its production job security with contract extensions to convince union workers around the U.S. to switch from a pension-style retirement plan to a 401(k)-style contribution plan. That will prevent additional pension obligations in the future.
As Boeing continues to reverse its underfunded pension status, it is gearing up for a bright long-term future. The company is planning to ramp up production on multiple aircraft to take advantage of its massive backlog of orders valued at $441 billion, which should boost top-line revenue. Furthermore, Boeing expects the world fleet to double in size over the next 20 years. That means an additional 35,280 new airplanes valued at roughly $4.8 trillion, and Boeing is strongly positioned to capture more than its fair share of this long-term growth.
Outside the Dow, Tesla Motors continues its drive higher as the company yesterday announced plans for its battery "gigafactory." Tesla is ramping up production of its Model S electric car, but if the company hopes to make the move from niche automaker to mass-market competitor it will need significantly more lithium-ion batteries for its vehicles.
Source: Tesla's 2013 Q4 letter to shareholders. 2014 Q2-Q4 are the author's estimates to reach 35,000 global deliveries.
Fortunately for investors, Tesla's gigafactory will be capable of producing batteries for 500,000 vehicles by the end of this decade. Tesla will put up $2 billion of its own money toward the total factory price tag of between $4 billion and $5 billion.
This facility will be constructed through 2015, with battery production to begin in 2017 -- right around the time Tesla's more affordable Gen III electric vehicle is expected to hit the market. As production at its battery factory accelerates it is expected to reduce battery pack cost per kilowatt hour by more than 30%, addressing an issue that has been one of the company's most expensive pieces of the puzzle. That price reduction will help the company bring down its Gen III electric vehicle costs and improve production capacity to make the vehicle a mass-market competitor.
Tesla has serious potential to disrupt multiple industries on the long-term horizon; that has investors climbing over one another to get additional shares of this company even with the stock price sitting near its all-time high.
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The article 2 Stocks for a Long-Term Investing Watchlist originally appeared on Fool.com.
Daniel Miller has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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