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It’s time for “window dressing”. This is when money managers try to look a little better by buying the top performing stocks for their portfolios at the end or beginning of the quarter. MidCap Aerospace & Defense companies fit this bill. They don’t have quite the stability of the LargeCap Aerospace & Defense companies, but they are often better growers. Three of the top performers are Triumph Group Inc. (NYSE:TGI), Hexcel Corp. (NYSE:HXL), and BE Aerospace Inc. (NASDAQ:BEAV). All have good growth history with a good outlook. They seem likely to get a “window dressing” lift in the next week, but more than that they seem likely to keep growing for quite some time. The recent Boeing Long-Term Market Forecast substantiates their outlooks.

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. These companies not only have a history of recent top performance, they are likely to continue to perform well for quite some time. This is another reason that 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 is from TDameritrade and Yahoo Finance. 

Stock

BEAV

HXL

TGI

Price

$38.93

$20.96

$96.15

1yr. Analysts’ Price Target

$44.17

$24.25

$118.58

PE

24.78

24.09

15.23

FPE

15.09

16.63

10.14

Avg. Analysts’ Recommendation

1.9

2.2

1.7

This Year EPS Growth Estimate

46.50%

39.20%

21.30%

Next Year EPS Growth Estimate

24.00%

22.30%

12.30%

5yr EPS Growth Estimate per annum

14.50%

9.55%

14.95%

EPS misses in the last 4 quarters

1

0

0

Avg. EPS beat % in the last 4 quarters

-3.375%

+15.075%

+13.675%

Stock Price Appreciation % YTD

+2.58%

+15.35%

+4.64%

Price/Book

2.38

2.85

1.43

Price/Cash Flow

18.65

14.42

9.35

Beta

1.93

1.69

1.14

Short Interest as a % of Float

1.88%

3.94%

8.27%

Cash per Share

$1.17

$0.52

$1.62

Market Cap

$4.01B

$2.05B

$2.33B

Enterprise Value

$5.14B

$2.28B

$3.60B

% Held by Institutions

81.62%

89.82%

86.80%

Total Debt/Total Capital (mrq)

42.44%

28.01%

44.56%

Quick Ratio (mrq)

1.03

1.46

0.48

Interest Coverage (mrq)

3.82

11.24

4.83

Return on Equity (ttm)

10.14%

13.58%

12.23%

EPS Growth (mrq)

47.06%

64.76%

40.94%

EPS Growth (ttm)

14.20%

77.82%

20.39%

Revenue Growth (mrq)

29.49%

26.08%

161.12%

Revenue Growth (ttm)

12.96%

16.75%

124.39%

Annual Dividend Rate

--

--

$0.32

Gross Profit Margin (ttm)

36.56%

24.11%

23.18%

Operating Profit Margin (ttm)

15.64%

12.33%

10.81%

Net Profit Margin (ttm)

7.53%

7.01%

5.25%

By the numbers, TGI looks like the best investment choice. It has the lowest PE at 15.23 and the lowest FPE at 10.14. It has a good 5 year EPS Growth Estimate per annum at 14.95%, plus it has recently announced a two for one stock split (in the form of a 100% stock dividend) payable on July 14, 2011 to shareholders of record on June 22. 2011. It also announced a doubling of the dividend. In other words, it will continue to pay its current dividend of $0.04 per share after the split. The company is set to benefit incrementally from the growth in the aircraft industry. A lot of TGI’s business is overhauling aero structures, aircraft components, accessories, subassemblies and systems. This means it gets business from all of the old planes as well as the coming new planes (as opposed to just new planes). The stock is also up from its recent secondary stock offering price of $92.75, which completed Wed. June 22, 2011. The stock spent most of Wednesday above $97, even after an overall market down week last week. The stock is currently trading at $96.15. TGI was recently selected to design and build the wings for the new Bombardier Global 7000 and Global 8000. The recent Vought acquisition should also help growth going forward.

Of course, there is always the specter of cuts in defense spending, so you don’t want all of your chips in this stock, but it could be worth some attention in your portfolio.

HXL and BEAV look interesting too, although they may be on the high end of their ranges now. These stocks are all worth watching. If the market tanks, as many are fearing, these companies could be among the first to rebound. If the market moves up from where it is, these stocks may be a bit overpriced compared with their LargeCap counterparts (PCP, HON, GR, and UTX). Still these companies will likely grow more quickly than the large caps in what seems to be a high growth industry for the foreseeable future.

The 2 year charts give an indication of investor belief in these companies.

2 year chart of TGI:

 

 

2 year chart of HXL:

 

 

2 year chart of BEAV:

 

Each of these stocks is in overbought territory in its Slow Stochastic sub chart, each has gained 120%+ in the last 2 years, and each is in a strong up-trend technically. These stocks may get a further boost this week from the “Window Dressing” phenomenon that occurs at the end and the beginning of each quarter. However, from a technical standpoint, I would try to buy any one of these stocks at or near a Slow Stochastic oversold point. Yes, I would like to participate in the up-trends of these stocks, but I would prefer not to overpay. Monitoring the Slow Stochastic is a good way to time an entry point. In the current unsettled overall market, it may be best to leg in, even at the low (20 or below on the Slow Stochastic). For this week, it may be most appropriate to sell out of the money July puts on one or more of these stocks. If the puts trigger, you will get to acquire one or more stock at a discount. If the puts do not trigger, you will collect the premium from the puts. 

Good Luck Trading.

Source: 3 Strong Mid Cap Aerospace Stocks That May Benefit From 'Window Dressing'