Can These Stocks Bounce Back?
Dec 19th 2011 5:43PM
Updated Dec 19th 2011 5:44PM
However hard the market slams a stock, there's always the chance it'll come bouncing right back. We'll consult our Motley Fool CAPS community to find shares on the rebound, examining one specific sector of the economy in search of companies with rising CAPS ratings.
There are 41 stocks listed under "aerospace/defense" in the CAPS' screener, of which more than a handful carry well-respected four- and five-star ratings. Those accolades mean our 180,000 CAPS members are confident that these stocks will beat the market in the months ahead, but let's see what members are saying about these in particular:
CAPS Rating Today (out of 5)
52-Week Price Change
Estimated 5-Year Growth Rate
|BE Aerospace (NAS: BEAV)||****||$36.49||(2%)||12%|
|General Dynamics (NYS: GD)||****||$63.20||(10%)||7%|
|Spirit AeroSystems (NYS: SPR)||****||$18.98||(7%)||22%|
Source: Motley Fool CAPS.
International and financial worries are again gripping the market, but with the S&P 500 falling 2% over the past 12 months, it may be surprising to learn that the CAPS aerospace/defense stocks have done better, rising 4% in that same time span. So let's take a closer look at why investors think some of these other companies won't be jumping from the frying pan into the fire now that the markets are roiled again.
Look out below
While the bankruptcy of American Airlines parent AMR (NYS: AMR) may seem to underscore the soundness of Warren Buffett's judgment against investing in airlines, there are still plenty of profits to be made in the industry. Don't buy the carriers, perhaps, just those that supply them with parts. Even in bankruptcy, AMR says it can still buy planes from Boeing (NYS: BA) and Airbus.
In that vein, both BE Aerospace and Spirit AeroSystems seem like winners, with the former being the world's largest provider of cabin interior products (think seats, galley carts, and fasteners), and the latter being the world's largest independent supplier of commercial airplane assemblies and components, such as fuselages and wing systems.
Despite government statistics showing orders for durable goods cooling off recently as demand for aircraft and business equipment fell in October, Boeing recently scored major deals with Lion Air and Southwest Airlines (NYS: LUV) for deals that could be worth a total of more than $40 billion. That's going to require a lot of parts and accessories and should keep the assembly lines at BE and Spirit humming along.
That could be why highly rated CAPS All-Stars rate both suppliers to outperform the market averages, with 98% of those weighing in clearing them for takeoff. Add BE Aerospace and Spirit AeroSystems to your watchlist and see whether all of these orders help their share prices gain altitude.
A good offense
Yes, the war in Iraq is over for the U.S., and the Defense Department is proposing $450 billion worth of spending cuts in addition to those that will be mandated by the supercommittee's failure to come up with a deficit-reduction plan, but that doesn't mean we just hang up our war materiel and go home. The world is still a hostile place, featuring the ever-present Middle East flashpoints and grave new uncertainties in North Korea with the death of its dictator, Kim Jong-Il.
Defense contractor General Dynamics is preparing for the eventuality of a new world defense order, such as its buyout of Force Protection (NAS: FRPT) to gain access to its armored-vehicle program. It plans on making more acquisitions going forward, and with more than $1.5 billion in cash on its balance sheet, it has the wherewithal to do it.
Buffett isn't buying airlines, but he did buy a big stake in General Dynamics -- some 3 million shares -- apparently unconcerned about defense-spending cuts. CAPS member market8 is also ambivalent about defense spending and focuses instead on GD's business jet segment: "With this company you get very stable cash flows, but my favorite part of the company is the upside the Gulfstream brand provides. Time is a critical resource for the super wealthy and business jets should have strong global demand going forward as the rising elite seek to maximize the one resource they can't buy more of."
Gulfstream would be very much in line with Buffett's NetJets division, but let us know on the General Dynamics CAPS page whether you think it's more than just coincidence, and add the stock to your watchlist to stay on top of any additional purchases Buffett may make here.
The ball's in your court
You don't have to be a multibillion-dollar defense contractor to make it big. Read the Fool's new report "Too Small to Fail: Two Small Caps the Government Won't Let Go Broke" that details these up-and-coming leaders in the aerospace business.
At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of General Dynamics. Motley Fool newsletter services have recommended buying shares of Southwest Airlines and Spirit AeroSystems Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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