By Guy Adami

After Veterans Day this week and with the tragedy at Foot Hood still at top of mind, I thought it would be an appropriate time to discuss the aerospace and defense sector.

Bullish Calls:

Salesforce.com (CRM): "Salesforce.com is the right stock… [CEO] Mark Benioff has the smartest cloud computing technology… again, here we are again, this stock is right at its high… Would it be great to wait for a 5% to 10% pullback? Yes, but if you had to get started, I would own some right now. If you need 50 shares, buy 10 right now."

It's true. There is a shortage of bullets, and many stores are putting limits on how many bullets a customer can buy. Part of the increase is due to an increase in the demand for handguns, with gun permits increasing by over 25% from last year. Another reason is that gun owners are stocking up on bullets, just like stocking up on gold.

There are a couple of publicly traded companies that manufacture ammunition. Olin Corporation (OLN) makes Winchester Ammunition. The stock has a forward P/E of 36 and pays a 4.7% yield.

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

Next up is Ken Griffin's Citadel Investment Group. Ken got his start trading options from his dorm room at Harvard his freshman year. He then launched a convertible bond arbitrage fund his sophomore year and by his senior year, he had $1 million from investors invested in that strategy. Since then, Citadel has seen average annual returns of around 20%. The year of 2008 was a difficult one for them though, as their flagship Wellington and Kensington funds were down big. In fact, they were among the top 10 hedge fund asset losers. Since they would not be recouping performance fees from those funds for a while it seemed, they did what any sensible hedge fund manager would do: start new funds where they can collect the fee again. This is an endless boom bust cycle we've seen in hedge fund land. If you fail, then just come back with a new entity and you're good to go.

At the end of each trading week, Hillbent scans for the equity market for potential anomalies which exhibit extremely oversold and overbought conditions. Past observations have revealed that such candidates may experience reversal corrections to the upside or downside once the market reconfirms that their fundamentals remain solidly intact or relatively poor. From a contrarian perspective, these lists may also serve as a precursor to changes in institutional sentiment and underlying fundamentals.

The purpose of this report is not to provide specific recommendations, but instead serve as a time-saving reference tool and starting point for investment ideas over the upcoming trading weeks. Of course, the results generated are not always perfect and users are strongly encouraged to perform their own due diligence on these names. Note that overbought and oversold conditions are based upon proprietary algorithms and quantitative models instead of conventional technical analysis indicators. As a supplement to this report, please refer to our Market Condition Summary to determine if market direction trends support a bullish or bearish investment bias over short-term, intermediate, and long-term timeframes.

We are now more or less two thirds of the way through earnings season. This seems like a good time to revisit a screen we first ran about a month ago.

Using the data we generate as we scan over 7200 stocks and ETFs at Alert HQ, we assembled a screen that is composed of stocks with the following characteristics:

Now that the nearly $800 billion Stimulus Package is signed into a law, the question is how its provisions would affect the different industries, which companies would present attractive investment opportunities and which ones we should avoid. After discussing the possible effects on the Solar Industry, we now take a look at the Defense Industry.

Defense companies have enjoyed an abundance of government funding over the last several years. The estimated Defense Military outlays for 2009 are approximately 650 Billion, more than double the amount of the last budget before 9/11. As a result, companies involved with defense, homeland security and aerospace have outperformed the broader markets, with the SPADE® Defense Index (DXS) beating the S&P500 Index by 80.3% cumulatively for the 9/10/01 – 2/23/09 period.

F3Q09 (Qtr End 12/31/08) Earnings Call

January 29, 2009 10:00 am ET

This is the Third Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the preface to the series we're doing on Hedge Fund 13F filings here.

The other funds we've already covered include:

Q2 FY09 Earnings Call

October 30, 2008, 10:00 AM ET

If you still haven't put any defense and aerospace stocks in your portfolio, you should seriously consider doing so before October. There are plenty of these 'war' stocks to choose from, including ones that pay high yields. Here are some that you may want to site your scopes on and possibly pull the trigger. All of these have market caps over $1 billion:

• Alliant Techsystems Inc. (ATK) manufactures and markets aerospace and defense products and ammunition. The stock has a P/E of 16, and a PEG of 1.56.
• Boeing (BA) makes and markets jets, military aircraft, missile defense systems, satellites, and launch systems. The stock has a P/E of 11, a PEG of 0.83, and pays a yield of 2.8%.
• CAE Inc. (CGT) makes and markets simulation equipment and services to the civil aviation industry, military organizations, and defense organizations. The stock has a P/E of 17, and pays a yield of 1.2%.
• DRS Technologies Inc. (DRS) a provider of defense electronic products, defense systems, and military support services. The stock has a P/E of 19, a PEG of 1.34 , and pays a yield of 0.2%.
• Elbit Systems Ltd. (ESLT) is an Israeli company that makes unmanned air vehicles, advanced electro-optic and space technologies, electronic warfare suites, airborne warning systems, electronic intelligence systems, and military communications systems. The stock has a P/E of 18, a PEG of 1.77, and pays a yield of 1.7%.
• Embraer, also known as Empresa Brasileira De Aeronutica S.A. (ERJ) based in Brazil, makes and markets jets and aircraft for defense and civil aviation markets. The stock has a P/E of 14, a PEG of 0.86, and pays a yield of 3.9%.
• General Dynamics Corp. (GD) manufactures aviation products, combat vehicles, weapons systems, and munitions. The stock has a P/E of 14, a PEG of 1.32, and pays a yield of 1.7%.
• Goodrich Corp. (GR) makes and markets components and systems for the commercial and general aviation airplane markets, and the defense and space markets. The stock has a P/E of 10, a PEG of 0.62, and pays a yield of 2%.
• Honeywell International Inc. (HON) is involved in the business of aerospace, automation solutions, specialty materials, and transportation systems. The stock has a P/E of 13, a PEG of 1.05, and a yield of 2.5%.
• Lockheed Martin Corporation (LMT) manufactures military aircraft, and air vehicles, including the F-35 Joint Strike Fighter, the F-22 air dominance attack aircraft, and the F-16 multi-role fighter. The stock has a P/E of 15, a PEG of 1.25, and pays a yield of 1.6%.
• Northrop Grumman Corp. (NOC) provides aerospace products, electronics, and shipbuilding to the military, government, and commercial customers. The stock has a P/E of 13, a PEG of 1.03 , and pays a yield of 2.5%.
• Raytheon (RTN) has six divisions: Integrated Defense Systems, Intelligence and Information Systems, Missile Systems, Network Centric Systems, Space and Airborne Systems, and Technical Services. The stock has a P/E of 15, a PEG of 1.11, and pays a yield of 2%.
• Rockwell Collins Inc. (COL) makes and markets communications and aviation electronics. The stock has a P/E of 13, a PEG of 0.8, and pays a yield of 2%.

If you like high yield stocks, you should also consider Top Monthly Dividend Stocks, Top Yielding NYSE Stocks, and Stocks with Tax Free Dividends.

2) July CPI came in at a red hot +0.8%, or 5.6% YOY. With wage growth at zero this means that the US standard of living is declining at a 5.8% annual rate this year. Thank you president Bush! Well done! This is what John McCain has to sell this year. Tough.

Q1 FY09 Earnings Call

August 7, 2008, 10:00 AM ET

Q4 FY08 Earnings Call

May 8, 2008, 10:00 AM ET

The aerospace and defense sector has held up fairly well over the past year, with a small percentage gain in the face of a declining overall market. Some of the strength may be attributed to the continued wars in Iraq and Afghanistan. However, with much talk of troop withdrawal and the ongoing fight in Congress regarding funding, some companies have been hit hard in the past year; e.g. Ceradyne (CRDN)- which makes the ceramic SAPI plates used in individual body armor, and Force Protection (FRPT)- which makes armored vehicles, like the USMC’s new mine resistant ambush protected Cougar vehicle.

Here are the problems with CRDN, FRPT and similar companies:

Q4 FY08 Earnings Call

May 8, 2008, 10:00 AM ET

Canadian M&A activity has picked up with eight new deals announced since March. However, accessing debt continues to remain a challenge and Industry’s Canada recent rejection of Macdonald Dettwiler & Associates Ltd.’s (MDDWF.PK) C$1.33-billion satellite division sale to Alliant Techsystems Inc. (ATK) signals the increasing role national security is playing in takeovers.

Wellington West analyst Shawn Chopra said this will ultimately lead to increased spreads in M&A transactions involving foreign companies. In a note he told clients:

We believe that leveraged buyouts will have wide spreads relative to the pre-credit crisis (pre- August 2007) because access to debt will be difficult.

When Macdonald Dettwiler (MDDWF.PK) finally admitted that it wanted to sell its space and satellite systems division to Alliant Techsystems (ATK) for C$1.3 billion (having originally denied the rumour, see post “Canadarm to wind up in U.S. hands?” June 14-07), my first reaction was typically nationalist: “Would the Americans let their key military or space supplier be sold to anyone, even a NATO ally?” Of course not.

So why would we? Have we not learned the industrial policy lesson of the Avro Arrow?

Stocks discussed in the lightning round session of Jim Cramer’s Mad Money TV program, Monday April 21. Click on a stock ticker for more analysis:

Bullish calls:

Caterpillar (CAT): "I think CAT is one of the greatest companies in the world…CAT is going to blow its numbers away, I think, for the next year or two, and just take advantage of those analysts who said sell it, and buy, buy, buy!"
L3 Communications (LLL): " …continues to go higher, and it's one of my absolute favorite defense plays."
Alliant Techsystems (ATK), General Dynamics (GD), Northrup Grumman (NOC)
Hasbro (HAS): "That was one beautiful quarter! I am telling you right now that this was a beginning of a major HAS move."
Tele Norte Leste (TNE): "You've got more to come there! You've got Brazilian horse sense."
Frontline (FRO): "When it comes to shipping, I have been front and center with one... Frontline Ltd."
Hess (HES): " HES had a big move today."
Occidental Petroleum (OXY): " I think the integrators are so much better than the individual refiners that I'm going to suggest both Occidental Petroleum Corp. and ConocoPhillips."
Conoco Phillips (COP)
Vale de Rio Doce (RIO): "I think that RIO is absolutely the single cheapest metals stock in the world, because they own - and have a hammer lock on - nickel! And you can't get enough of it..."
BHP Billiton (BHP): "These stocks cannot be contained by gravity!"
Freeport McMoRan (FCX), JPMorgan Chase (JPM), Hudson City (HCBK)

There is a story making its way around Bay Street law firms right now, and it has to do with the alleged “real reason” why the federal Conservative government turned down the proposed acquisition of Macdonald Dettwiler and Associates’ (MDDWF.PK) space systems division by Alliant Techsystems (ATK:NYSE) (see prior post “Prentice is right to reject MDA space deal” April 10-08).

The story ostensibly is that a press event was planned for Prime Minister last year involving RADARSAT-2 and the role the new satellite was to play in our nation’s Arctic Sovereignty strategy. Two days before the event was to take place, MDA supposedly advised Ottawa that it would be selling its space systems division. The optics on the big photo op changed pretty quickly, or so the story goes. Perhaps there was to be an event, and the proposed sale undercut the planned PMO messaging, but the implication that Industry Minister Prentice has refused to approve the deal ’cause MDA ruined a “messaging day” seems ludicrous to me.