Part 3

In order to help our followers maximize their profitability, we have decided to analyze the performance of some of the biggest companies within the two ETFs (XLI & XLF).

Boeing Co. (BA)

Company Background

Let’s start with the XLI. The biggest company within the ETF is Boeing with its 7.87% weight. That being said, Boeing plays an important role fo the overall performance of the XLI. The Boeing Company (BA) is a leader in the production of jet aircrafts, along with varied defense products, making it one of the largest defense contractors in the United States. The company’s customers include domestic and foreign airlines, the Department of Homeland Security, the US Department of Defense, and the National Aeronautics and Space Administration (NASA).

Boeing has suffered quite a lot already during the coronavirus pandemic due to the lack of demand among its airline customers. The pandemic has led to a closure of the airports and cancellation of flights, which has led to a huge decrease in the production of airplanes. Therefore, Boeing has decided to cut 10% of its staff due to the current financial situation it is going through. The company’s share price fell drastically from $350 in mid-February to only $90 a month later. In other words, the stock lost 74% of its value because of the coronavirus pandemic and the sell-off it caused. Yet, Boeing has been in business for more than 100 years and has become a global player in the sector it operates.

In other words, even though the company has suffered a lot due to the coronavirus pandemic, we believe it would still do well in the longer run based on its leading presence in the market it operates.

Technical Analysis

Boeing’s stock is still trading quite low ($167) compared to the highs it had reached just before the pandemic started ($347). In fact, the stock is still trading at a 52% discount from the highs and that could represent a great buying opportunity that could in turn maximize our profitability to the upside.

By looking at the daily chart, one could easily see the strong support mark at $156 that has been tested since the beginning of August and the price has been failing to close a candle below that level ever since. What does that mean? It means that traders and investors appreciate the presence of Boeing in the sector it operates and have been buying at that huge discount in order to maximize their profitability to the upside.

Fundamental Analysis

From a fundamental point of view, we would be looking very closely at the upcoming 3rd quarter earnings report coming out on the 28th of October. The expectations are for $-2.46 EPS (earnings per share), due to the fact that practically the whole airline sector stopped operating during the first few months of the pandemic. Yet, flights have been operating for a few months now and it is possible that the company surprises the market and delivers a better than expected result, which in turn would be very positive for the future direction of the share price. The 52% correction would motivate traders and investors to buy the stock and maximizing their profitability to the upside.

Chart: Boeing Company (BA)

We will start buying the BA stock at the $162 above the key support at $157. In case the price drops further we would be interested in adding more to our buy positions at the next key support at $146, which would give us a chance to improve our average cost basis. Our first take profit target is set at $185, followed by the next target at $200-$210 where we would be fully closing our positions and cashing in profits.

Citigroup Co. (CITI)

As our first stock pick from the XLF we have decided to analyze the performance of Citigroup, which currently accounts for 5% of the XLF’s portfolio.

Company Background & Fundamental Analysis

Citigroup is the 3rd largest bank in the US and it is part of the Big Four banks together with JP Morgan Chase, Wells Fargo and Bank of America.

The Bank provides its customers with diversified financial services including consumer banking and credit, corporate and investment banking, securities and wealth management. Being a global leader in the sector it operates, Citigroup has got around 200 million customers in 160 countries around the world.

The company has kept on delivering great financial results over the past few years. The revenues and profits of the company have been rising steadily following the economic growth in the US and globally.

Technical Analysis

By looking at the chart, we could see the huge correction that took place during the massive stock market sell-off. Citigroup lost 56% of its value by dropping from $80 to only $35 in only 4 weeks back in February-March. Since then though the stock has been following the positive investor sentiment and we have seen a strong bullish rally towards the $62 highs, followed by a profit-taking correction towards the key support mark at $41 in the end of September. Yet, investors have been looking for such short-term corrections on the price and patiently waiting for the right time to start buying the leading financial institution’s stock at a strong support level. Therefore, once the price reached that key support line that has proven to bring lots of buying activity, traders and investors started buying aggressively and that has already sent the price towards the $45. The stock is still trading at a 44% discount from the $80 highs it reached early in the year before the pandemic started. By taking into account the great financial performance of the company in the past 5 years and the current correction we believe it is worth going for a buying position on Citigroup. The recent correction has sent the price from $50 towards the current $45 and the price is testing a very strong support at the current levels while the technical indicators are heading higher and giving more bullish indications to follow up on. Furthermore, the Bank is expected to announce its 3rd quarter earnings on the 13th of October and the expectations are for $0.97 EPS. The company delivered $1.98 per share in the same quarter of last year. However, due to the coronavirus the analysts covering the company have logically lowered their expectations for this year’s 3rd quarter report. Any figure better than the $0.97 would be seen as positive for the market and it would prove to investors and traders that its strong financial positioning and market presence has helped the company do quite well even during the coronavirus pandemic and the global economic slowdown.

Chart: Citigroup

We will start buying Citigroup stock at the first strong support at $44.90-$45.00. Should the price drop further in the short-term we would be interested in buying more at the next key support mark at $41.40 where more buying pressure is expected and will give us a chance to improve our average cost basis. Our initial profit-taking interest would be at $47, followed by the next target at $50 where we would be fully closing our positions and cashing in profits.


Sincerely,

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