Analysis And Valuation: United Technology, Lockheed, Northrop, General Dynamics, Huntington Ingalls

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 |  Includes: GD, HII, LMT, NOC, UTX
by: CRG Research

Right now, I am bullish on U.S. fixed-income securities, U.S. equities, crude oil, and gold, although equities could be in the process of going into an intermediate-term decline as part of an overall major decline. The monetary and fiscal policy in the European Union and the U.S. could provide the catalyst for a major decline. That being said, I am opportunistically bullish on stocks and the "risk-on" trade. All investments I make are in accordance with my daily value-at-risk guidelines.

Below is the equity research and analysis on United Technologies (NYSE:UTX), Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC), General Dynamics (NYSE:GD), and Huntington Ingalls Industries (NYSE:HII), because they could make good additions to a portfolio.

United Technologies - Buy: Valuations are near troughs; Shares of United Technologies are undervalued.

UTX v. Industry (TTM)

  • Return on Assets: 9.04 v. 2.92
  • Return on Investment: 13.40 v. 4.64
  • Return on Equity: 23.08 v. 17.53

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Book value-share is relatively flat and increased in the recent quarter.

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Shares of UTX are trading well off of the 2011 and 2012 highs, as economic headwinds in the U.S. and European Union have weighed on shares.

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UTX is the cheapest that it has been this year on a price-sales basis.

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UTX is valued well below its 2011 and 2012 peaks on a price-book value basis.

Lockheed Martin - Neutral: The decline in book value-share due to an increase in liabilities is a trend; the trend would have to change before the opinion changes.

Lockheed Martin v. Industry (TTM)

  • Return on Assets: 7.40 v. 2.92
  • Return on Investment: 11.02 v. 4.64
  • Return on Equity: 103.50 v. 17.36

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Book value-share declined as other liabilities and long-term liabilities increased; the decline in book value-share is bearish.

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The share price has declined recently as economic headwinds in the U.S. and European Union have weighed on share prices.

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Price-sales is declining; but, given the book value-share trend, we don't consider the stock undervalued. Revenue-share increased and price declined.

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Price-book value is increasing, although the valuation metric is off of its high, as share price declined.

Northrop Grumman - Neutral: There is no reason to buy shares of Northrop Grumman and no reason to remain long.

Northrop Grumman v. Industry (TTM)

  • Return on Assets: 8.09 v. 2.92
  • Return on Investment: 10.46 v. 4.64
  • Return on Equity: 18.50 v. 17.53

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Book value-share has declined, as cash and short-term investments has declined.

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The share price hasn't traded above the 2011 high (Northrop is a laggard). The price of common equity shares has declined recently, as economic headwinds in the U.S. and European Union have weighed on the price of shares.

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Price-sales has been between 0.50 and 0.60 in the past few months.

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Price-book value has declined recently as the share price and book value have declined. Price-book value remains well above the 2011 low.

General Dynamics - Neutral: Investors should accumulate at a price-sales ratio of 0.67 and price-book value below 1.6.

General Dynamics v. Industry (TTM)

  • Return on Assets: 7.30 v. 2.92
  • Return on Investment: 10.81 v. 4.64
  • Return on Equity: 18.02 v. 17.36

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Book value-share is increasing, a bullish sign. However, the increase in book value-share is mostly due to a decrease in shares outstanding.

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The share price hasn't traded above the 2011 high (General Dynamics is a laggard). The price of common equity shares has declined recently, as economic headwinds in the U.S. and European Union have weighed on the price of shares.

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Price-sales has declined on a decrease in share price, while revenue-share has increased.

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Price-book value is in a down trend; the ratio is making lower highs and lower lows. Price declined as book value increased.

Huntington Ingalls Industries - Neutral: Shares are probably overvalued.

Huntington Ingalls Industries v. Industry (TTM)

  • Return on Assets: -1.82 v. 2.14
  • Return on Investment: -2.29 v. 3.08
  • Return on Equity: -9.30 v. 4.52

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Book value is declining; the decline in book value-share is a bearish sign. The decrease in book value-share is mainly due to an increase in other liabilities.

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The price of common equity shares has declined recently, as economic headwinds in the U.S. and European Union have weighed on the price of shares.

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Price-sales has increased; a large portion of the increase in price-sales is due to a decline in revenue-share.

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Price-book value has increased; a large portion of the increase in price-book value is due to a decline in book value-share.

Macro Environment

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The ISM non-manufacturing PMI is declining, a sign of slowing growth in the U.S. The ISM non-manufacturing PMI should remain above 50.

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The pace of job growth in the US has slowed and should expand at a pace of 50-100k jobs-month in the coming months.

Click to enlargeCB consumer Confidence is increasing; the consumer confidence index should decline in the coming months.

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European Union flash services PMI is declining; the services index should rise in the coming months.

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European Union manufacturing PMI is declining; the index should rise in the coming months.

Author's Note: As a formally trained investment analyst and portfolio manager, my mission on Seeking Alpha is to provide my audience with outstanding investment opinions (buy, neutral, sell). The best way for me to communicate my investment opinions is to tell you how I am currently investing.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.