With Precision Castparts Corp. (NYSE: PCP), as air travel goes, so go the profits, which is why I'm Reiterating my Buy rating for the company, first recommended on April 20, 2009, at a price of $61.92. If you bought PCP in April, you're up an impressive 50%.
Precision is a major maker of jet engine components, and PCP will benefit as engine orders ramp-up in FY2010. By most measures, an industrial bottom is occurring in the U.S. and global economies in Q3/Q4. Hence, rising demand coupled with the need to re-stock inventories of parts bodes well for Precision. The key revenue drivers: 1) emerging market economies that are modernizing their airline fleets and increasing fleet sizes and 2) Boeing's (NYSE: BA) new 787 Dreamliner, which should undergo its first test flight by the end of 2009.
Obviously, any further complications or delays with the 787 program would weigh on Precision's shares. The First Call FY2010/FY2011 EPS estimates for PCP are $6.79 to $7.65.
Technically, Precision's stock chart is strong, and a recent pull-back to around $95 provides a Buy opportunity. PCP also earlier penetrated psychological resistance at $100.
Finally, the Sell/Stop Loss has been raised to $62, or to just above cost, from $32. Hence, this is a zero-risk trade for your April-bought shares.
Stock Analysis: Precision Castparts Corp. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in PCP now; then another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your PCP position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $62.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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