Three Aerospace Income Investments to Purchase Amid Hostilities from Russia and China
By: Paul Dykewicz,
The three aerospace income investments to purchase as Russia’s President Vladimir Putin continues to attack both civilian and military targets, damaging the world’s grain supply, also should benefit from China’s increasingly aggressive acts that in the past few days involved military drills near Taiwan and flying drones close to Japan on Friday, Aug. 5, boosting tensions since U.S. House Speaker Nancy Pelosi visiting the island, as one of several stops in Asia.
Since Putin ordered the invasion of on Ukraine Feb. 24, niche opportunities have been observed within a sector that tends to retain demand, even when inflation rises, and the economy weakens. The three aerospace income investments to purchase are among the equities that can withstand threatening words from China’s leaders that characterized frail, 82-year-old Pelosi’s visit to Taiwan as America playing with fire and putting it in enough peril to “perish by it.”
Three Aerospace Income Investments to Purchase Are Aided by Bipartisan Support
Democrats and Republicans clash on most issues these days but they have been united in the defense of America and freedom around the world by supporting increased funding toward aerospace programs to protect against threating actions by Russia, China, North Korea, Iran and others. Aerospace companies traditionally have withstood inflationary pressures, slow economic growth, rising interest rates and the uncertainty of election years such as this one, said Ron Epstein, the aerospace and defense analyst at BofA Global Research.
The second-quarter 2022 reporting period showed 60% of S&P 500 companies announcing results, with 73% of them delivering a positive earnings per share (EPS) surprise and 66% offering a rosy revenue result. In addition, the blended earnings growth rate in second-quarter 2022 reached 6.0% for the S&P 500.
“By no means is this an all-clear sign because the market has managed a strong relief rally,” wrote Bryan Perry, leader of the Premium Income Pro advisory service, in his weekly update. “The bearish camp owned the narrative and now there is a more positive tone taking shape that is built on the notion that a deep recession will be avoided and good companies will grow, albeit at a slower pace.”
Paul Dykewicz interviews Bryan Perry, leader of Premium Income Pro.
Due to heightened bullish sentiment, confidence is rising that the market can keep advancing and consolidate while investors monitor new economic data to assess the China’s threatening actions, the impact of inflation, the strong dollar, the inverted yield curve and Russia’s effect on commodities as Putin keeps attacking Ukraine, opined Perry, who also leads the Cash Machine investment newsletter. Perry, who further helms the Quick Income Trader, Breakout Options Alert and High Tech Trader advisory services, wrote to his subscribers that for the first time in many months the proverbial glass is looking more than half-full for the U.S. equity market.
Penson Fund Chief Chooses ETF as One of Three Aerospace Income Investments to Purchase
An investor who wants a diversified way to tap into the aerospace sector should weigh an exchange-traded fund (ETF), said Bob Carlson, who leads the Retirement Watch investment newsletter. The ETF with the most consistent returns is dividend-paying Aerospace & Defense (PPA), he added.
Bob Carlson, who leads Retirement Watch, meets with Paul Dykewicz.
The fund is designed to follow the SPADE Defense Index, which is focused on companies that are involved with aerospace and space. Both are regarded as important to the defense sector.
Aerospace and Defense Fund Finds Place Among Three Aerospace Investments to Purchase
Top holdings are Boeing (NYSE: BA), Raytheon (NYSE: RTX), General Dynamics (NYSE: GD), Northrup Grumman (NYSE: NOC) and Lockheed Martin (NYSE: LMT). Boeing is one of the world’s largest aircraft manufacturers, but it has yet to recover completely from the fallout of two 737 MAX aircraft crashes in 2018 and 2019 that killed a combined 346 people.
An encouraging sign is Delta Air Lines (NYSE: DAL) announcing in July that it would buy 100 Boeing 737 MAX 10 jets worth about $13.5 billion at list price, with an option to purchase an additional 30 of the aircraft. At the Farnborough Airshow in London, Qatar Airways, a state-owned flag carrier of Qatar, announced on July 21 the purchase of 25 Boeing 737 MAX 10 airliners. Even though Boeing still is awaiting regulatory approval to fly the new-generation Boeing 737 MAX aircraft, the manufacturer has amassed orders for more than 1,000 of the planes.
Chart courtesy of www.stockcharts.com
Money Manager Likes Leidos as One of Three Aerospace Income Investments to Purchase
Leidos Holdings (NYSE: LDOS), a Reason, Virginia-based science and technology company that serves civil, aviation, defense health and intelligence industries, still may be known by some people by its former name of Science Applications International Corporation (SAIC). Leidos merged with Lockheed Martin’s (NYSE: LMT) information technology (IT) sector, Information Systems & Global Solutions, in August 2016, to form the defense industry’s biggest IT services provider.
The merger became one of the largest transactions in the aerospace and defense sector, positioning Leidos to work extensively with the U.S. Department of Defense, the U.S. Department of Homeland Security and the U.S. intelligence community, including the National Security Agency (NSA).
BofA placed a $125 price objective on the stock and supported it by stating the value is in line with defense prime contractors, as strong U.S. national security demand for innovative technologies and solutions and solid free cash flow generation is offset by a lumpy award environment, supply chain challenges in the near term, pressure on pricing and mounting concerns about labor inflation.
Within the defense services industry, Leidos is the largest and most diversified company, said Michelle Connell, a former portfolio manager who heads Dallas-based Portia Capital Management. The company provides scientific, engineering and technical services to government and highly regulated industries.
Michelle Connell, of Dallas-based Portia Capital Management
Three Aerospace Income Investments to Purchase Serve Defense Departments
The services of Leidos focus on surveillance, cybersecurity, logistics and energy. The company’s customers include the U.S. Department of Defense and the British Ministry of Defense.
With a market capitalization of more than $13 billion, Leidos Holdings is a mid-cap stock, Connell said. However, combining growth with strong fundamentals and cash flow should qualify the company as a Growth at a Reasonable Price Services (GARP) stock that focuses on surveillance, cybersecurity, logistics and energy.
Leidos reported strong results on Aug. 2 that beat revenue and earnings expectations. However, the stock slid 4% after it reported earnings, possibly due to lighter-than-expected bookings of future services, she added.
The recent pullback in the company’s share price enhances its merit for potential new shareholders, Connell said. The stock has an upside of about 15% during the next 12 months and offers a dividend yield of 1.4%.
Chart courtesy of www.stockcharts.com
Three Aerospace Income Investments to Purchase Include Hexcel
Hexcel Corporation (NYSE: HXL) is a dividend-paying Stamford, Connecticut-based manufacturer of advanced composite materials for commercial aerospace, space, defense and industrial markets. Its outlook should be aided by enhanced manufacturing orders for commercial aircraft, especially more fuel-efficient commercial jetliners that may be ordered by customers wary about high oil prices.
BofA gave the stock a price objective of $65, partly based on accelerating commercial recovery. Potential upside to the price target could occur if Airbus A350, A32neo, and Boeing 737 MAX production rates continue to ramp up as expected and 787 deliveries resume, according to BofA.
Plus, HXL may trade at a higher premium to the market compared to BofA’s estimates, the investment firm wrote. A jump in oil prices also could lift demand for and provide upside to estimates in the medium term, BofA added.
Risks to underperform include the majority of sales are original equipment manufacturer (OEM) and there is little aftermarket, which may prove problematic if the civil aircraft cycle turns dramatically. BofA cautioned. Hexcel also could be materially impacted if serious complications arise from new platforms like the Boeing 787 and the Airbus A350. Unexpected cancellations to programs in both commercial and military could materially impact HXL. Any problems with execution, particularly as capacity expands, further could impact results.
Chart courtesy of www.stockcharts.com
Non-Dividend-paying TransDigm Offers an Alternative to Aerospace Income Investments
TransDigm Group Inc. (NYSE: TDG), a Cleveland-based global producer, designer and supplier of highly engineered aerospace components, systems and subsystems for use on almost all commercial and military aircraft, is another buy recommendation of BofA. However, it currently does not offer a dividend.
On May 25, TransDigm Group announced that it had completed its acquisition of Canada’s DART Aerospace, a Montreal, Quebec-based portfolio company of Greenbriar Equity Group, L.P., for roughly $360 million. TransDigm financed the acquisition initially with cash on hand.
DART is a provider of highly engineered, unique helicopter mission equipment solutions that mainly service civilian aircraft. The company is expected to generate approximately $100 million in pro forma revenues for the calendar year ending December 31, 2022. Approximately 95% of DART’s revenues are derived from proprietary products and about 80% of its revenues come from the aftermarket. The products are commonly used in major commercial rotary-wing platforms, as well as select applications for defense and safety services.
BofA placed a $720 price objective on the stock, partly based on TransDigm’s strong aftermarket positioning, robust margin performance and solid cash generation. Risks to reaching that target include increased oil prices slowing air traffic growth and therefore aircraft demand to cause a downturn in commercial aviation, BofA wrote.
“However, if the commercial aerospace and business aviation jet recoveries are better than we are forecasting, earnings could fare better than our projections and the stock could perform better,” BofA wrote in a research note. “If margins fare better than we are forecasting, there could also be upside potential to our valuation.”
Chart courtesy of www.stockcharts.com
U.S. COVID Deaths Top 1.03 Million
Aerospace production and sales are affected by rising COVID-19 cases and deaths that can restrain demand. As a result, investors should pay attention to the latest trends.
U.S. COVID-19 deaths climbed for the third consecutive week by more than 3,000 to 1,030,997, as of Aug. 3, according to Johns Hopkins University. Cases in the United States jumped by almost 900,000 for the third straight week to 91,589,488. America still holds the undesirable distinction as the country with the largest number of COVID-19 deaths and cases.
Worldwide COVID-19 deaths jumped by more than 16,513, up from the prior week’s 14,600, but down from 19,000 in the week before that one, totaling 6,405,538 as of Aug. 3, according to Johns Hopkins. Global COVID-19 cases rose 7.06 million, down from 7.2 million during the prior week and 7.5 million the week earlier, hitting 579,463,990 by Aug. 3.
Roughly 78.8% of the U.S. population, or 261,654,61, have received at least one dose of a COVID-19 vaccine, as of July 27, the CDC reported. Fully vaccinated people total 223,245,563, or 67.2%, of America’s population, according to the CDC. The United States also has given at least one COVID-19 booster vaccine to 107.9 million people, up 400,000 in the last week.
The three aerospace income investments to purchase offer a defensive way to invest due the rising demand for goods and services in the industry. Despite the highest inflation in 42 years, a second consecutive 0.75% Fed rate hike and other rate increases that may follow to follow, the trajectory of the three aerospace income investments to purchase is ascending amid Russia’s attacks on Ukraine and China’s sharply military provocations after an octogenarian leader of Congress stopped in Taiwan during her travels through Asia.