The savvy investor knows that, in addition to the known performers, one has to locate those 'off the radar' stocks -- potential gems and overlooked performers that don't receive much publicity. And with the aforementioned in mind, Olin Corp. is worth a review.
Olin Corp. (NYSE: OLN) is a diversified producer of chlor-alkali chemicals and ammunition.
Analysts like Olin's chlor-alkali business (75% of 2008 revenue), including products caustic soda and chlorine, among others. An ammunition business rounds-out OLN's diverse industrial plate. Look for the ammunition business to continue to benefit from strong U.S. Government orders, in the immediate years ahead. The Reuters F2008/F2009 EPS consensus estimates for OLN are $1.97/$2.03.
The risks? The commodity chemicals segment is cyclical -- some products are used in pulp and paper processing and to keep swimming pool water clean, for example -- so analysts will look for signs of a slower-economy-induced dip in orders in Q1/Q2 2008. Analysts are also keeping an eye on Olin's skilled labor costs.
Boeing may abandon plans to sell its aerial refueling tanker internationally if it loses its protest of a U.S. Air Force decision to buy $40 billion worth of tankers from a competitor, The Wall Street Journalreported Wednesday [subscription].
Boeing's Mark McGraw, the executive in charge of the program, told The Journal that Boeing had counted on the Pentagon to provide enough volume to make an international tanker business viable.
In February, Northrop Grumman (NYSE: NOC) and partner European Aeronautic, Defence & Space (EADS), parent of Airbus, beat out Boeing, the Air Force's only supplier of the aircraft for half a century; the Air Force recently announced that it continues to support that decision. Boeing protested the award to the Government Accountability Office, which must make its recommendation to the Pentagon by Thursday.
Boeing's (NYSE: BA) shares were virtually unchanged on the news in Wednesday mid-day trading, gaining eight cents to $74.43. Northrop Grumman rose $1.03 to $72.09 and EADS fell 46 euro cents to 13.57 euros on the Paris Exchange.
Readers of this space know that selected defense contractors are my preferred plays, growing U.S. economy or not. (But let's hope it's a growing U.S. economy). And the reason for the defense contractor bullishness is obvious enough. The geopolitical climate can change, of course, but it looks like defense, national security and anti-terrorism efforts will remain at the top of the U.S.'s concerns, for the foreseeable future.
Further, when one can combine a defense contractor with an industrial play, including commercial aviation, the potential exists for superior return on equity. And with the above in mind, United Technologies is worth a review.
United Technologies (NYSE: UTX) is one of those handful of stocks in which you can buy 200 shares or 50 shares for your child's college fund, and then look back on it in 10 years and be very glad you did.
Here are some attributes: Leadership position in high-value-add sectors, substantial defense contracts, infrastructure/capital improvement businesses, technological leadership, diversification and operational balance, economies of scale, massive amounts of engineering talent, long history of steady earnings growth and dividend growth. The Reuters F2008/F2009 EPS consensus estimates for UTX are $4.88/$5.45.
Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable global trend as a support. And with the above in mind, Boeing is worth an evaluation.
In general, analysts expect 3-5% revenue growth in FY 2008, and 7-10% in FY 2009 as Boeing's increased aircraft production to meet high order backlogs offsets production delays in the 787 Dreamliner.
Moreover, although not to give short-shrift to Boeing's Integrated Defense Systems division, now the world's second-largest military contractor, behind Lockheed Martin (NYSE: LMT), the major driver of BA's future value-added will continue to be its commercial aviation operation, led by the next-generation 787 Dreamliner.
Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable global trend as a support. But every once in while an exception is made, and with the above in mind, L-3 Communications (NYSE: LLL) is worth a review.
L-3 makes secure and specialized systems for satellite, avionics, and marine communications, with a healthy percentage of its business coming from the U.S. Government.
Analysts like LLL's diversified revenue streams: specialized products (34%) intelligence/communications (22%) government services (25%), and aircraft modernization and maintenance (19%).
Bell Boeing has received a $10.4 billion U.S. Department of Defense contract for the V-22 Osprey that guarantees production of at least 167 more of the aircraft through 2012, Bell Boeing announced Monday.
Bell Boeing is a strategic alliance between Bell Helicopter, a unit of Textron (NYSE: TXT) company, and Boeing (NYSE: BA).
The five-year contract includes 26 CV-22 aircraft for the U.S. Air Force Special Operations Command and 141 MV-22 aircraft for the U.S. Marine Corps. The contract includes an option for additional aircraft.
Both Boeing and Textron moved higher on the news. Boeing shares gained 83 cents to $74.30 and Textron rose 47 cents to $55.07 in early Monday trading.
The V-22 is a tiltrotor aircraft with proprotors and engines installed in nacelles at the tips of both wings.
Analysis: The contract is good news on a number of fronts, the most obvious of which is additional work for Boeing and Textron. In the last six months Boeing shares have declined roughly $30 to about $74 on rollout delays for its next-generation 787 Dreamliner commercial aircraft, and the U.S. economic slowdown. The news is also a mild shot in the arm for the U.S. economy, which given the large number of industrial jobs lost to cheaper overseas manufacturing zones, can use all of the domestic industrial jobs it can get.
With the U.S. economic landscape remaining uncertain, it's prudent to add a defensive stock or two to your portfolio, and with the aforementioned in mind Alliant Techsystems is worth an evaluation.
Alliant Techsystems (NYSE: ATK) is an ammunition supplier and rocket engine / motor manufacturer with substantial United States Government contracts.
Analysts like Alliant's strong fundamentals, solid U.S. Department of Defense orders for ammunition, equally impressive launch systems work from NASA, and sporting ammunition business.
Analysts also believe ATK is well-positioned to capture a portion of the U.S. DOD's work for next-generation weapon systems.
The risks? An early withdrawal of U.S troops from Iraq would lower ATK's revenue for F2009-F2010. Analysts are also keeping an eye on the company's productivity per man hour.
The First Call mean rating for ATK is: Buy. [12 firms.] Mean 2008 target: $128. [high: $136, low: $120.] Stock Analysis: Alliant Techsystems is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from ATK's shares. Sell / Stop Loss if you were to purchase shares in this company: $68.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
The market's choppy / consolidating pattern continues, suggesting the need for a defensive play or two, and there are few defensive plays better than...a defensive stock, and in this category, Raytheon is worth an evaluation.
Raytheon's defense offerings include reconnaissance, targeting, navigation systems, and missile systems (Patriot, Sidewinder, Tomahawk), and radar. The company also makes radios, air traffic control systems and satellite communications systems. About 80% of RTN's sales are to the U.S. government.
Overall, analysts see modest growth in defense spending. The current Democratic Party-led U.S Congress, if it retains its majority-party status after the November 2008 election, is likely to appropriate defense dollars more carefully. Nevertheless, present/future military threats argue that above-average demand for RTN's services will remain through at least the next presidential term, which ends in 2012. The Reuters F2007/F2008 EPS consensus estimates for RTN are $3.24/$3.81.
Given the market's continued choppy / consolidating pattern, it makes sense to add a defensive stock or two, and one worth an evaluation is conglomerate Olin Corp.
Olin Corp. (NYSE: OLN) is a diversified producer of brass metal products, chlor-alkali chemicals, and ammunition.
Analysts like Olin's chlor-alkali business (21% of 2006 revenue), including products like caustic soda and chlorine, among others. An impressive brass operation (67% of 2006 revenue), and an ammunition business (12% of revenue) rounds-out OLN's diverse industrial plate. Look for the ammunition business to continue to benefit from strong military orders, in the immediate years ahead. The Reuters F2007/F2008 EPS consensus estimates for OLN are $1.50/$1.46.
The drawbacks? The commodity chemicals segment is cyclical -- some products are used in pulp/paper processing and to keep swimming pool water clean, for example -- so analysts will look for signs of a slower-economy-induced dip in orders in Q1/Q2 2008.
The First Call mean rating for OLN is: Buy. [7 firms.] Mean 2008 target: $24.00. [high: $27, low: $20.]
Stock Analysis: Olin Corp. is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from OLN's shares. Sell / Stop Loss if you were to purchase shares in this company: $13.
DISCLOSURE: Joseph Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
It' s not everyday that investors are presented with a growth opportunity, supplemented by more-than-modest downside protection, but that's the case with General Dynamics.
General Dynamics (NYSE: GD) is a diversified manufacturer of corporate jets and heavy vehicles, and is the second largest military shipbuilder -- specializing in nuclear-class submarines.
Along with consistent earnings and dividend growth, analysts like GD's platform diversity, with civilian work (Gulfstream corporate jets) complementing defense contract work (Trident submarines, armored vehicles). Analysts expect GD's revenue to increase about 10-13% in 2007, and 9-11% in 2008.
Moreover, GD's shares offer a measure of safety in that the submarine portion of the U.S. defense system is the force projection most likely to continue to be funded by Congress. Along with stealth fighters/bombers, submarines are the least-detectable form of military operations.
Long term, analysts generally see growth in GD's sales of business jets, land vehicles and munitions. Cost containment has been adequate. The Reuters F2007/F2008 EPS consensus estimates for GD are $5.07/$5.71.
The qualifiers? A reduction in U.S. Department of Defense appropriations would hurt GD's results, as would a failure to deliver existing work on time.
The First Call mean rating for GD is: Buy. [19 firms.] Mean 2008 target: $99.00. [high: $106, low: $94.]
Stock Analysis: General Dynamics is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from GD's shares. Sell / Stop Loss if you were to purchase shares in this company: $62.
Readers of this space know that the preference is for long-term plays with companies with demonstrated business models (10 years), in an established market, with an average total annual return on equity of 20% during that span. It also helps if the company has a secular tailwind and/or is one of only a few players in a sector.
On the last point, Northrop Grumman Corp. (NYSE: NOC) ranks very high, and it fares reasonably well in the other categories, too.
Northrop is the U.S.'s No. 3 defense contractor and the No. 1 shipbuilder in the world. Analysts like NOC's operational diversity, cash flow, and solid balance, but the company's standout dimensions, from an investment standpoint, are its electronics systems business (21% of revenue) and its ship building business (17% of revenue).
The electronics business is likely to remain a key player in radar/navigation/communications systems, moving forward, and the ships business is also in a preferred position: it's one of only two nuclear-power submarine makers in the U.S. and the only builder of U.S. aircraft carriers. Of course, no one can predict with any certainty the role aircraft carriers will play in defense operations -- the aircraft carrier's demise has been predicted for (seemingly) the past three decades -- but the sense here is that these ships will retain a role in the decades ahead. The company also builds the B-2 stealth bomber and has a 25% stake in the F-35 next-generation, joint-strike fighter.
For L-3 Communications, the defense never rests. L-3 Communications Holdings, Inc. (NYSE: LLL) makes secure and specialized systems for satellite, avionics, and marine communications, with a healthy percentage of its business coming from the U.S. Government.
Analysts like LLL's diversified revenue stream: specialized products (34%), intelligence/communications (22%), government services (25%), and aircraft modernization and maintenance (19%).
Analysts expect 8%-9% organic revenue growth in 2007 and 7%-8% in 2008, including solid growth in government service and specialized products. The Reuters F2007/F2008 EPS consensus estimates for LLL are $5.95 to $6.51.
The risks? Analysts are keeping their eye on LLL's profit margins, high financial leverage, and ability to increase its low dividend. A substantial decline in U.S. government/defense spending would also hurt L-3's results.
The First Call mean rating for LLL is: Hold [15 firms]. Mean 2008 target: $116.20 [high: $129, low: $108].
Stock Analysis: L-3 Communications is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from LLL's shares. Sell/Stop Loss if you were to purchase shares in this company: $78.
Look for Textron (NYSE: TXT) to continue to benefit from the global economy's tailwind.
Strong global economic growth should continue to generate solid demand of the company's Cessna jets and planes, which accounted for 51% of its profits. Further, analysts expect Textron's Bell division to perform well in 2008-2009 on strong commercial and military helicopter orders.
Textron's Industrial division should also post solid results, manufacturing everything from golf carts to lawn care machinery to auto parts. A decent, stable dividend adds to the mix. The Reuters F2007/F2008 EPS consensus estimates for TXT are $3.49/$4.09.
General Dynamics Corp. posted a 25% rise in third-quarter net income, citing robust government defense spending and booming sales of business jets. It also raised its full-year outlook. General Dynamics, which makes Abrams tanks and Stryker troop carriers, two mainstays of U.S. ground forces in Iraq, reported net income of $546 million, or $1.34 a share, compared with $438 million, or $1.08 a share, a year earlier.
General Dyamnics during the quarter improved cash-flow, cash reserves, contracted back-log of work, profit margins and gave a positive outlook to top it all off.
One of the things that makes GD so strong going forward is that the United states war machine keeps finding new frontiers every time you might think that calm is in order. And speaking of orders, investors shoud keep in mind that even if the war in Iraq stopped today and by the wave of a magic wand we could bring the troops and equipment home right now, replenishing our military hardware that has been destroyed, damaged, or just plain worn out will cost billions. General Dynamics and the other defense contractors should do very well even in peace time.
Boeing may abandon plans to sell its aerial refueling tanker internationally if it loses its protest of a U.S. Air Force decision to buy $40 billion worth of tankers from a competitor, 
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