In searching out investments for 2008 -- what is likely to be a precarious stock market -- I have been touting the defense industry for the last two months as one of the stories for next year in terms of growth and safety. A press release today noted: "The benchmark SPADE Defense Index (AMEX: DXS) currently has a year-to-date gain of 21.5%, nearly 20% better than the widely followed S&P500 broad-market index."
Certainly this might have been expected in the aftermath of the September 11 tragedy, and given that the U.S remains at war in Iraq and Afghanistan. But this is just one aspect of the industry. Some companies like Boeing Co (NYSE: BA) are doing equally well in the private sector selling new planes and replacement parts for aging fleets.
Raytheon Co (NYSE: RTN) is heavily involved not just with airport security, but develops radar and monitoring systems for airport safety. This is of growing concern as the skies become more congested and airports more impacted.
United Technologies (NYSE: UTX) makes military helicopters that are also used for civilian fleets and fire fighting. UTX also is a world leader in the private sector owning Otis Elevator, Carrier Air Conditioning and more.
Net income at JPMorgan rose 2% to $3.37 billion, or 7 cents per share, compared with $3.30 billion, or 5 cents, a year earlier. Revenue rose 4% to $16.11 billion. The results included a $1.3 billion writedown and credit loss provisions of $18 billion. Analysts had expected profit of 90 cents on revenue of $16.6 billion. The results stunned Wall Street and highlighted Chief Executive Jamie Dimon's prowess as a cost-cutter.
The picture at Coke was also bright thanks to strong sales outside the U.S. Profit at the Atlanta-based company soared 13% to $1.65 billion, or 71 cents a share, from $1.46 billion, or 62 cents, a year earlier. Revenue rose 19% to $7.69 billion. Wall Street had expected profit of 68 cents.
Meanwhile, United Technologies continued to produce strong results. Net income at the parent of Pratt & Whitney aircraft engines and Otis elevators, surged 20% to $1.2 billion, or $1.21 per share, as revenue jumped 14% to $12.16 billion. The results surpassed the $1.16 average estimate of analysts polled by Thomson Financial.
Altria Group reported net income of $2.63 billion, or $1.24 per share, down from $2.88 billion, or $1.36 per share, because of the spinoff of Kraft Foods Inc. (NYSE: KFT), helped by higher prices and a weaker dollar, according to Reuters.
United Technologies Corp. (NYSE: UTX) is scheduled to report its Q3 earnings before tomorrow's market open. Analysts are forecasting 17% earnings growth to $1.16 per share. The company has narrowly surpassed earnings expectations each of the past four quarters and hasn't missed since Q4 2004. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on UTX.
The stock has been on an uptrend for most of 2007, with a sharp jump in September to reach a 52-week high of $82.50 early this month. UTX opened this morning at $80.13. So far today the stock has hit a low of $79.50 and a high of $80.73. As of 11:00, UTX is trading at $79.64, down 26 cents (-0.3%). The chart for UTX looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $65 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just 3 months as long as UTX is above $65 at January expiration. United Technologies would have to fall by more than 18% before we would start to lose money.
UTX hasn't been below $65 since April and has shown support around $71 recently. This trade could be risky if the company's earnings tomorrow morning disappoint, but even if that happens, this position could be protected by strong support around $70, where the stock's 200 day moving average currently resides.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Brent neither owns nor controls positions in UTX.
MOST NOTEWORTHY: Palm (PALM), Fuel Tech (FTEK), Weyerhaeuser (WY), and John Wiley & Sons (JW.A) were today's noteworthy upgrades:
Palm Inc (NASDAQ: PALM) was upgraded to Outperform from Market Perform by Morgan Keegan, who expects PALM's recapitalization to bring more financial discipline, better growth from new products, and views the valuation as compelling.
FuelTech Inc (NASDAQ: FTEK) was upgraded to Buy from Accumulate at ThinkEquity, which believes the company technologies are well-positioned as the U.S. Clean Air Act takes effect.
Bank of America upgraded Weyerhaeuser Company (NYSE: WY) to Buy from Neutral, citing valuation and their prediction that the company's restructuring will create value for shareholders.
John Wiley & Sons Inc (NYSE: JW.A) was upgraded to Buy from Hold by Stifel Nicolaus & Co, which views the company as a consistent performer with emerging catalysts and reasonable valuation.
When thinking about the current state of the market, forget about bulls and bears and think slacker.
You know, the type of young person living at home with his parents -- usually a guy -- who spends his days sitting on the coach playing video games in his underwear and whining about his lot in life. Like this annoying protagonist, the stock market doesn't know what it wants to do, surging from irrational exuberance to manic depression in the blink of an eye.
Uncertainty abounds over the subprime mortgage meltdown, retail sales, and whether Lindsey Lohan's latest stint in rehab will take. (Okay, that's what I am uncertain about). But remember that some smart person once said that without risk, there is no reward, and that markets don't act crazy forever. Until the market takes a huge chill pill, there are many stocks out there that are too cheap too ignore -- some of which I discuss in this video.
Net income was $1.15 billion, or $1.16 per share. Gains across its lines of business ranging from Otis elevators to Sikorsky helicopters boosted sales by 13% to $13.9 billion. Analysts surveyed by Thomson Financial had expected earnings of $1.15 on revenue of $13.34 billion.
The company raised revenue guidance for the year to $53 billion from $51 billion and upped its EPS estimate to $4.15 to $4.25 from $4.05 to $4.20. Investors, though, apparently were expecting better, sending shares down in pre-market trading. Analysts expected earnings of $4.19 on sales of $52.4 billion, according to Thomson Financial.
Though United Technologies trails GE in market cap, it beats its larger rival in share performance. This year, shares of the Hartford-based company have jumped about 23%, more than double GE's 9%. The stock also is cheap with a multiple of 20.3 compared with GE's 19.6.
Computer Sciences(NYSE:CSC) call volume and volatility spikes on renewed speculation. CSC is recently up .97 to $61.27 on unconfirmed deal chatter Blackstone(NYSE:BX) or HewlettPackard (NYSE:HPQ) will make a bid. CSC is frequently chatted as being sold to IBM (NYSE:IBM), Lockheed Martin(NYSE:LMT), United Technologies (NYSE:UTX) or private equity after Apollo Managements' bid for the CSC failed in the spring of 2006. CSC July 62.5 calls have traded 126 times on transaction volume of 3,459 contracts above its open interest of 2,356 contracts. CSC August option implied volatility of 36 is above its 26-week average of 25 according to Track Data, suggesting larger price fluctuations.
They say turnabout is fair play. In this case, turnabout may mean global prosperity, or close to it.
In a twist of the macroeconomic landscape, the emerging market economies of China, India, Brazil, Russia, along with the European Union are boosting U.S. growth, while also supporting growth in smaller economies around the world.
That may not seem like a major economic accomplishment or turn of events -- particularly for those readers/investors not old enough to remember the way things were before the dawn of economic globalization -- but it is. Prior to globalization, the United States's economy served as the engine of growth for most of the free world. That exemplar status for the U.S. economy gave birth to the phrase, "When the U.S. economy catches a cold, the rest of the world catches pneumonia."
The "Totally Informal Economics Roundtable" (TIER) met this past week -- the esteemed round table achieves a quorum whenever yours truly and my three astute economist friends from graduate school convene to discuss matters economic ... or to celebrate the birthday of one our school-age children, or for another social occasion. This week the topic was the global savings surplus.
Earlier on The FLY and on bloggingstocks.com, the TIER commented on the global savings surplus, or more-broadly, the large and increasing pool of global capital that's spanning the globe in search of return and yield.
It's hard for Americans to think in terms of a "savings surplus" with the U.S. posting a negative savings rate for more than a year, a savings rate well below appropriate levels for an advanced industrial economy, but the world is awash in capital, fed in part by savings. China, Japan, the European Union, and some petro-dollar countries have vast amounts of surplus savings. This fact, combined with a corporate capital base in the U.S. and abroad, has produced a multitude of unexpected consequences -- consequences that have lasted longer than many economists and analysts expected, the TIER agreed.
The first and foremost consequence, the TIER agreed, has been continued low interest rates for long-term bonds, mortgages, and certificates of deposit. Further, although recently released statistics from the Congressional Budget Office indicate the U.S. budget deficit in fiscal 2007 could drop to as low as $150 billion, five consecutive years of plus-$200 billion deficits normally should have led to a crowding-out effect on capital, resulting in higher long-term interest rates. Those high rates did not -- and have not -- materialized, the TIER agreed, due to that foreign savings surplus -- foreigners' willingness to buy U.S. Treasuries while spanning the globe for return and yield.
This morning's New York Times [registration required] details the $131 million worth of assets held by Brooke Astor, the New York social doyenne who turns 105 this week. Among these holdings is $23.5 million spread among 15 stocks, two of which might be good buys.
Astor, who was the subject of reports alleging that her son, Anthony Marshall, let her sleep on a urine-drenched couch, would be appalled that these details were being broadcast. I am guessing that maybe Marshall or his lawyers provided the confidential details to the New York Times to help show what a wonderful job he did managing her money. But surely she would view the disclosure of her wealth as the ultimate social faux pas.
As unpleasant as it may be to consider the business of war, the War on Terrorism has had a significant impact on our economy. The Defense Department today released figures showing which companies are garnering the largest portions of the military spending to support both the war and ongoing operations.
The Pentagon's Top 10 Prime Contact award winners for 2006 are:
Lockheed Martin (NYSE:LMT), $26.6 billion, up from $19.4b in 2005.
Loyal bloggingstocks.com readers will recall the review of General Electric (NYSE:GE), the diversified industrial giant that, via its fundamentals and breadth of operations, serves as a "mini-mutual fund" in one company.
In other words, purchasing 50 or 100 shares of GE is tantamount to buying a mid-cap equity mutual fund, sans the load fee.
But are there any other stocks that rival GE's designation.? United Technologies (NYSE:UTX) is close. UTX is a multi-industry holding company that undertakes operations in six impressive business segments: Otis, Carrier, Pratt & Whitney, Sikorksy, Hamilton Sunstrand, UTC Fire & Security.
-Otis is the world's largest maker of elevators and escalators. Otis account for about 22% of UTX's revenue and has a solid international presence, with 80% of the divisions' revenue stemming from international sales.
-Carrier, 29% of UTX's revenue, is the world's largest maker of commercial and residential heating/ventilation/air conditioning systems, and also offers refrigeration and food service equipment.
-Pratt & Whitney, 22% of UTX's revenue, is one of the three-largest jet engine makers in the world, supplying engines to both Boeing (NYSE:BA) and Airbus, and to the U.S. Department of Defense [fighter jets and transport aircraft.]
-Hamilton Sunstrand, 10% of UTX's revenue, is a leading aerospace and industrial products manufacturer.
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In searching out investments for 2008 -- what is likely to be a precarious stock market -- I have been touting the defense industry for the last two months as one of the stories for next year in terms of growth and safety. A press release today noted: "The benchmark SPADE Defense Index (AMEX: DXS) currently has a year-to-date gain of 21.5%, nearly 20% better than the widely followed S&P500 broad-market index."
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When thinking about the current state of the market, forget about bulls and bears and think slacker.
Computer Sciences
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As unpleasant as it may be to consider the business of war, the War on Terrorism has had a significant impact on our economy. The Defense Department today released figures showing which companies are garnering the largest portions of the military spending to support both the war and ongoing operations.
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
