Image Source: UnsplashOne of our highest conviction picks heading into 2025, and perhaps the most unpopular at the moment, is Boeing Co. (BA). Our thesis can be summed up in one sentence: It operates in a legal, growing, global duopoly with Airbus, with the two companies delivering more than 99% of commercial aircraft from 2000 – 2022.Our confidence in Boeing is underpinned by its massive $0.5 trillion backlog, enough to support approximately seven years of sales. The backlog continues to grow, with 335 net orders valued at around 27.3 billion year-to-date in late 2024. Clearly, this is not a demand issue. Short-term headwinds, such as the extended labor strike and concerns over dilution from the capital raise, provided us with an opportunity to significantly increase our stake. While the 38% wage increase (bringing average machinist pay to $119,300 from $83,000) was higher than expected, we view the long-term financial impact as highly manageable.Boeing Co. (BA)We project around $1.2 billion in increased labor costs (assuming 33,000 machinists) over the life of the contract. In terms of dilution, the recent capital raise simply resets Boeing’s share count to 2014 levels, as management materially reduced its float through buybacks over the past decade.With both of these overhangs now behind Boeing, the focus shifts back to what the company does best: Making planes. As production ramps back up, free cash flow will inflect, with management expecting FCF to turn positive in the back half of 2025. Even if Boeing’s previously announced $10 billion FCF target is delayed until 2027-2028, this still implies an attractive two-year-out free cash flow yield of around 9%. We view the appointment of Kelly Ortberg as a game-changer in the Boeing turnaround. Unlike his predecessor, Dave Calhoun (accounting background), Ortberg is a hands-on engineer. This is helpful when you want to keep doors on planes. Ortberg has already moved to Seattle to be closer to the factory floors where Boeing’s commercial airplanes are actually produced.Longer-term, Boeing is set to benefit from two powerful secular trends: Emerging market growth (China expects a 2x commercial aircraft fleet by 2043) and replacement cycle in developed markets (rising average fleet age). These tailwinds should provide a multi-year runway — no pun intended — for orders, driving growth for the next 20-plus years.As production ramps up and Boeing returns to what it does best, the stock is positioned for significant upside. Our base case suggests shares of BA reaching $300+ over the next 24 to 36 months. This cheap valuation, combined with the company’s role as a proxy for US manufacturing (a sector that remains a key focus for the incoming president), makes BA a great name to own in the years ahead.More By This Author:Temporary Relief On U.S. Trade Triggers A Dollar Correction
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