Strong Aerospace Performers Make Good Portfolio Window Dressing

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 |  Includes: GR, HON, PCP, UTX
by: David White

It's the end of the quarter again. It's time for money managers to adjust their portfolios. Many will want to own top performing stocks at the end of the quarter. The aerospace industry has been doing well, especially the aerospace parts manufacturers: Precision Castparts Corporation (BATS:PCP), Honeywell International Inc. Co. (NYSE:HON), Goodrich Corporation (NYSE:GR), and United Technologies Corporation (NYSE:UTX). For many, a picture is worth a thousand words. The following charts describe the above stocks recent price performance.

The 2 year chart of PCP:

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(Click to enlarge)

The 2 year chart of HON:

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(Click to enlarge)

The 2 year chart of GR:

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(Click to enlarge)

The 2 year chart of UTX:

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(Click to enlarge)

These companies have all exhibited great growth over the last two years. It seems likely that the good performance will continue for some time into the future. The Boeing Long-Term Market Forecast calls for worldwide GDP growth of 3.3% per year for the next 20 years. It projects +5.1% passenger traffic growth and +5.6% cargo growth per year. This will translate into +3.6% annual growth in the number of airplanes. This should mean that the above companies should see good, consistent growth. It is a reason money managers are likely to add these top performers to their portfolios at the end of this quarter and the beginning of next quarter. The table of fundamental financial data below substantiates this. The data are from TDameritrade and Yahoo Finance. 

Stock

PCP

HON

GR

UTX

Price

$153.78

$56.35

$92.39

$84.33

1yr. Analysts' Price Target

$171.19

$68.50

$104.29

$97.83

PE

21.85

19.82

17.88

17.13

FPE

15.41

12.33

14.32

13.67

Avg. Analysts' Recommendation

1.9

2.0

1.8

1.9

5yr EPS Growth Estimate per annum

11.32%

15.96%

11.38%

10.74%

Price/Book

3.09

3.79

3.22

3.49

Price/Cash Flow

19.69

13.19

12.1

12.05

Beta

1.42

1.37

11.17

1.05

Short Interest as a % of Float

2.14%

0.65%

1.58%

0.91%

Cash per Share

$8.06

$4.58

$6.50

$4.85

Market Cap

$22.13B

$44.35B

$11.54B

$77.18B

Enterprise Value

$21.20B

$48.38B

$13.08B

$83.23B

% Held by Institutions

92.66%

79.64

88.78%

80.45%

Total Debt/Total Capital (mrq)

3.20%

39.27%

39.46%

30.91%

Quick Ratio (mrq)

2.33

1.0

1.38

0.86

Interest Coverage (mrq)

286.71

12.47

8.53

11.94

Return on Equity (ttm)

15.47%

21.65%

19.98%

21.47%

EPS Growth (mrq)

12.78%

39.47%

77.07%

18.70%

EPS Growth (ttm)

7.63%

31.65%

30.52%

15.09%

Revenue Growth (mrq)

16.82%

14.57%

11.84%

10.83%

Revenue Growth (ttm)

13.94%

10.89%

7.22%

6.54%

Annual Dividend Rate

$0.12

$1.33

$1.16

$1.92

Gross Profit Margin (ttm)

30.44%

23.86%

30.94%

27.52%

Operating Profit Margin (ttm)

24.02%

9.03%

15.03%

13.38%

Net Profit Margin (ttm)

15.98%

6.51%

9.33%

8.75%

EPS misses in the last 4 quarters

2

0

0

0

Avg. EPS beat % in the last 4 quarters

-0.825%

+14.50%

+14.65%

+2.575%

Stock Price Appreciation % YTD

+9.19%

+3.95%

+3.82%

+6.76%

Click to enlarge

The data above indicate that all four of the stocks are fundamentally strong. Together with the Boeing Long-Term Market Forecast, these data virtually ensure that the above companies will continue to do well. Choosing among the good, HON has the highest Return on Equity -- 21.65%. It has the lowest FPE -- 12.33. It has the highest 5 year EPS Growth Estimate per annum -- 15.96%. This sounds fantastic to me. Apparently it sounded fantastic to the market as well. HON was relatively flat on Friday while most other stocks went down. GR has the steadiest record with respect to beats on earnings reports. Plus it has great growth. It would be another good candidate. However, I don't think you can go too far wrong with any of these stocks longer term. They have all beat the SPY year to date by approximately 4% to 9%. Shorter term, they should all be good bets to go up in the end of the quarter/beginning of the next quarter "window dressing" buying spree.

In addition to the end of quarter/beginning of the next quarter inclination to buy, money is moving out of money market funds due to the EU credit crisis. That money has to go somewhere. The overall market is oversold. It's due for a bounce back. A bounce back is also due from the downward push to the oil heavy S&P500 by the SPR release of 60M barrels of oil. A good place to put your money might be in strongly growing big caps that pay good dividends.

The ducks seem to be in a row. You can at the least start legging into the stocks above, or alternatively you could sell July "close to the money" puts on them. In that way you would effectively get the stock(s) for a lower price, and/or you would get the premium from the puts. If you believe in a strong upward movement you could use the money from the put selling to finance buying call options in the same stocks.

Good Luck Trading.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PCP, HON, GR over the next 72 hours.