The Defense sector has not fared well over the last six months as it has become obvious that major cutbacks to defense spending will be needed to restore some fiscal balance. One stock that has been punished unfairly is General Dynamics.
General Dynamics (GD) – “General Dynamics Corporation provides business aviation, combat vehicles, weapons systems and munitions, military and commercial shipbuilding, and communications and information technology products and services worldwide”. (Business Description from Yahoo Finance)
7 reasons GD is a buy at $62 a share:
1. GD provides a 3% yield and has raised its dividend payout by an average of 14% over the past five years.
2. It is selling near the bottom of its historical valuation range based on P/E, P/S, P/B and P/CF.
3. General Dynamics has beaten earnings estimates 9 of the last 12 quarters. The average beat over consensus has been 3% over the past four quarters.
4. Only 1/3 of its 2013 estimated profit is projected to come from the defense industry, but it has been punished by the market as if it were a pure defense play.
5. GD has an A rated balance sheet, sells at 7 times operating cash flow and has a price to sales ratio of just .7.
6. GD has a forward PE of just 8.1 which is a 32% discount to its historical average.
7. General Dynamics is selling at under analysts’ price targets. S&P has a price target of $80 on GD, Credit Suisse is at $88 and the median analysts’ price target on General Dynamics is $82.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GD over the next 72 hours.