Key insights
- The author suggests a potential buying opportunity in aerospace stocks (GE, Safran, Heico, Honeywell, TransDigm, Rolls Royce) may arise in approximately three months. Rising oil prices could pressure airline profitability, reducing aircraft usage and aftermarket maintenance demand, temporarily impacting aerospace companies. The author anticipates lowered earnings guidance and a subsequent dip in stock prices, creating an attractive entry point for long-term investors. However, the current timing is deemed unfavorable.
There isn’t much else to say, it’s pretty self explanatory. You have rising oil prices, which will, in turn, push airlines to hike ticket prices, since jet fuel is essentially refined oil. Demand will likely decline, and as a result, the aerospace industry (where most profits are made in the aftermarket i.e., aircraft maintenance) will temporarily suffer. As no plane usage means no need for maintenance and repairs.
However, this crisis is clearly transitory and unlikely to structurally change the aerospace sector. Similar to 2020, which was arguably much worse than this. Some companies worth watching include GE, Safran, Heico, Honeywell (post spinoff), TransDigm, Rolls Royce, etc...
That said, the timing for buying right now is awful. But, in about three months, after companies report earnings (and likely lower their guidance if this situation continues) it would be a great opportunity to invest in these historical compounders.
Happy to hear any pushback.