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Buying General Dynamics While The Market Fears The Worst

Mar. 07, 2020 2:34 PM ETGeneral Dynamics Corporation (GD)11 Comments
AllStarTrader profile picture


  • General Dynamics shares have pulled back enough for investors to get another opportunity to add shares to their portfolio.
  • GD offers a broad range of products through its portfolio. These products are generally resistant to general economic sensitivities.
  • The shares are now near their 52-week lows despite little sensitivity to the current Coronavirus woes.
  • The company recently raised its dividend and authorized a new share repurchase program.

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General Dynamics (NYSE:GD) is primarily known as a producer of defense equipment. The company has an aerospace division, combat division, marine division, information technology division, and a mission systems division. Each one complementing each other in enhancing technology and offerings to provide superior products. As a producer of military equipment, the company benefits from strong defense budgets and awarded military contracts. However, the stock can be swayed if the defense budget is viewed as being cut. While some investors would consider the stock an industrial, I consider it less so due to the need for its products no matter the economic state of the country. As the shares trade closer to their 52-week lows, I believe now is the time for investors to add some to their portfolio.


General Dynamics recently reported earnings that beat on both the top and bottom lines.

Source: Seeking Alpha

The company saw growth in every operating segment showing it can continue to produce results. Earnings per share increased 14% from the prior year. Quite a nice number. "Aerospace" saw growth of 8.4%, "Combat Systems" saw a nice increase of 13.1%, "Information Technology" saw revenue grow a slight 1.9%, "Mission Systems" grew 2.5%, and "Marine Systems" saw a nice gain of 11.7%.

Operating margins continued to expand which helps drive profitability growth faster than revenue growth.

Source: Earnings Slides

These strong results would usually lead a stock to new highs and certainly create strong stock performance. The company is seeing growth of high double digits, thanks to many contract wins and a strong backlog. In fact, the backlog is a record $86.9 billion. This type of consistency and order log gives the company confidence in the future. This allows management to use its strong free cash flow to enhance shareholder returns.

As the

This article was written by

AllStarTrader profile picture
Started investing at 11 years old. Self taught, taking an analytical all around thought process approach to investing. Look at everything from all angles and every view and you will never miss anything. I believe in collecting dividends from most of my investments, just as an investment in a private company would return profits, so should my stocks. I prefer to invest based on fundamental values, but will consider the story of the company itself when necessary.

Analyst’s Disclosure: I am/we are long LMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (11)

What has the dividend growth been in the past few years ?
Small position with $GD but reluctant to buy more at any price. Defense stock sounds “defensive”, but only my utilities and pharmaceutical/biotech and $MSFT stocks have truly been defensive.
You mention record cash flows but they have declined for the last two years along with return on invested capital. On top of that, I don’t think the market liked their large IT acquisition which was low margin and low moat. I used to own GD about 5 years ago but I’m not overly impressed with the current CEO.
Invader from Earth profile picture
GD shows declining margins and may not be the perfect investment until that improves. Boats are on the decline for DOD. The article reads like a paid advertisement to hype the stock price.
AllStarTrader profile picture
If only I had the power or influence to hype the stock price.
"This is the 22nd year of consecutive dividend raises..."

According to General Dynamics, this is the 23rd consecutive annual dividend increase, not the 22nd.

AllStarTrader profile picture
Thanks for pointing this out
MisterJ profile picture
Exactly my thoughts. Bought on Friday.
SleepyInSeattle profile picture
I too have recently added more shares to my portfolio. Long GD.
I agree this company is a bargain. Based on historical earnings yield and cash flow yield, I calculated a fair price between $206-$216, which implies at least 26% upside from Friday's closing price. Add the strong dividend to that and you have a compelling bull case.
It seems like for the last year or so GD hits some resistance around 190. Regardless when it ducked below 160 last Friday I went in. I’m ok holding for a while but I think 190 to 195 by the end of the year. 15% upside in 10 months would align with my expectations.
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