4:20 PM, Aug 26, 2009 --

• NYSE down 9 (0.1%) to 6,687.94.
• DJIA up 4.23 (0.04%) to 9,544.
• S&P 500 up 0.12 (0.01%) to 1,028.
• Nasdaq up 0.20 (0.01%) to 2,024.

GLOBAL SENTIMENT

A stronger-than-expected first quarter result this week from CAE Inc. (CAE), the leading manufacturer of full-flight simulators, led to a series earnings and ratings revisions Thursday.

While the Montreal manufacturer’s civil segment is still expected to remain under pressure, its strong military sales and margins are expected to provide a buffer throughout the downturn.

With the continued erosion of the civil aviation market, Chris Murray, CIBC World Markets analyst, said he wouldn’t be surprised if CAE Inc. (CAE), the leading manufacturer of full-flight simulators, reduced its order forecast for the remainder year when it releases its first quarter results Wednesday.

Management’s current guidance of 20 full-flight simulator sales this year comes amid the continued “decay” of the large commercial aircraft market, and while CAE’s military business remains robust, new orders for commercial aircraft have been scarce at Boeing (BA) and Airbus this year.

The Canadian government’s decision to award the Boeing Co. (BA) a $1.15-billion contract Monday for 15 new Chinook helicopters could provide a boost for some Canadian aerospace firms as well, analysts say.

Typically under the terms of such contracts, Boeing would match the value of the contract with industrial offsets to Canadian companies, Chris Murray, CIBC World Markets analyst, noted.

For investors concerned with the potential for inflation here at home, companies that derive a significant portion of revenues from outside the U.S. may be of interest. Based on The Applied Finance Group’s valuation model, we found 10 attractive ADRs, as well as 10 unnatractive ADRs, with a market cap greater than $1 billion that derived more than 50% of sales from outside the U.S. in the most recent fiscal year.

An ADR (American Depositary Receipt) is a stock that trades in the U.S. but represents a specified number of shares in a foreign corporation. ADRs are bought and sold on American markets just like regular stocks, and are issued/sponsored in the U.S. by a bank or brokerage, making it easier for Americans to invest in foreign companies.

With increased uncertainty in the civil aerospace market, Chris Murray, CIBC World Markets analyst, lowered his earnings outlook for CAE Inc. (CGT) on the eve of its fourth quarter results Thursday.

Both Boeing (BA) and Airbus have indicated that they are making minor adjustments to their wide-body production rates, and Mr. Murray says he expects to see a “major” reduction in narrow-body deliveries occurring through 2010 as the airline industry suffers from dwindling demand for air travel.

Splicing with Gene & Thom: Two Outsiders Getting Inside Numbers
Source: Gene Arensberg & Thom Calandra 05/07/2009

Thom Calandra of Ticker Trax™ and Gene Arensberg of Got Gold Report go way back as friends, colleagues and students of natural resources. They’re talking about tracking the people worth their salt in metals and mining.

CAE Inc. (CGT) is expected to report strong fourth-quarter results next week despite a weakening aerospace market, according to UBS analyst Fadi Chamoun.

CAE, the leading manufacturer of full-flight simulators, is expected to report an 1.7% earnings growth, or 19 cents a share, for the final quarter of the year when it reports on May 14, Mr. Chamoun said. The gains are expected to be made on the back of a robust military segment, which topped a record C$1.09-billion in sales last year, and “healthy’ deliveries in the civil segment, he said.

Owning multiple funds with close correlations is mostly wasted effort and potentially self-deception. Owning multiple funds with a significant correlation spread can be helpful in reducing overall portfolio volatility.

Here is a table with the 6-month correlation of daily returns of selected iShares ETFs with at least 6 months of history (as of April 21, 2009), as rendered by the iShares website.

If you want to try the stock trading technique called 'Buying Dividends,' which is the technique of buying stocks before the ex dividend date and selling the stock shortly after the ex date at about the same price, yet still being entitled to the dividend, there are many stocks to choose from. This technique generally works only in bull markets.

When you buy dividends, there are many stocks in many different sectors to choose from. In order to be entitled to the dividend, you have to buy the stock before the ex-dividend date, and you can't sell the stock until after the ex date. The actual dividend may not be paid for another few weeks.

The industrials space is one that will surely suffer in a widespread economic slowdown. But it could also benefit from massive stimulus programs and in certain cases, lower oil prices. It breaks down into four distinct industries: aerospace & defence, railways, heavy equipment and airlines.

Desjardins Securities analyst Benoit Poirier expects the low price of crude will benefit the airline sector, and therefore by extension, the aerospace sector. He thinks they are in a better position to cope with the economic slowdown, which bodes well for their profitability in 2009.

Expect CAE Inc. (CGT) shares to be in a holding pattern for the time being, says Versant Partners analyst Cameron Doerksen.

RBC Capital has released a list of stocks on the S&P/TSX Composite Index it claims will have the most “predictable” positive performance.

“Predictability factors tend to perform well during low earnings growth environments or periods of high market volatility,” RBC analyst Chad McAlpine said in a note on Wednesday. The list was produced using RBC's proprietary computer models and boasts “defensive, high-quality names ... they offer strong growth profiles at attractive valuations,” he said.

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.

The impressive year-end results from CAE Inc. (CGT) Wednesday gave the company a boost, with several analysts subsequently increasing their earnings estimates for the world’s largest manufacturer of full flight simulators.

“We continue to believe CAE is well positioned to take advantage of strong industry fundamentals and demand for pilot training services,” said Chris Murray, CIBC World Markets analyst, in a note to clients. He raised his price target on the stock to C$17.50 from C$17. He also noted CAE tripled its quarterly dividend C$0.03 a share, and said it has the capacity to raise it to C$0.05 a share next year.

There are a several publicly traded technology companies in Canada, including a couple of well known-names. Canada isn't just the home of oil and mining stocks, it has plenty of tech, life sciences, and many other industries.

Petrobank should report another strong quarter of oil production, Rona’s earnings are likely to be hit by bad weather, and CAE Inc. is expected to post another record year of simulator orders when first quarter results are released this week, UBS strategists say.

Andrew Potter, analyst at UBS said calgary-based Petrobank Energy and Resources Ltd. (PBEGF.PK) is predicted to report strong production numbers this quarter, up 286% on-year, to an average 23,667 barrels of oil equivalent per day, when it releases its first quarter results today. The market expects an earnings per share of C$1.68 in the quarter, up from C$0.25 a year earlier.

Coal price rise could boost BHP's buyout bid. Japan's Nippon Steel agreed to pay $300 per metric ton for BHP Billiton's (BHP) coking coal supply, a price rise of more than 200%, amid increased demand and supply shortages. The huge increase will boost BHP's revenue by over $7B, and could bolster its efforts to acquire Rio Tinto (RTP).

As EADS NV, the parent company of European aircraft manufacturer Airbus, continues to discuss the parameters of its plans for acquisitions in the Americas, CAE Inc. (CGT) is increasingly looking like a potential takeover target, according to Chris Murray, CIBC World Markets analyst.

Earlier this year, EADS confirmed that it is in the market for two medium-sized companies in the United States that would provide access to markets that it is not currently exposed and to hedge its exposure against foreign currency. It has since said that it is also looking at other “aeronautical countries” like Brazil and Canada for an acquisition and that it is interested in potentially picking something up in pilot training services.

CAE (CGT) shares outperformed the market yesterday, which was the first trading day after the idea (see prior post “Is EADS looking at CAE?” March 20, 2008) that CAE might fit the stated 2008 acquisition profile of EADS was floated.

The stock rose 6% (the Dow was only up 1.5%) on volume of almost one million shares, as compared to average daily volume of 585k.