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Good short term upside for General Dynamics (GD)

|Includes: General Dynamics Corporation (GD)

First, lets get all the bad news about defense stocks out of the way.  With US poised to pull troops out of Iraq and defense secretary's decision to reshuffle budget allocation and cost cutting in defense orders,  all defense companies, not just GD, will take a hit.  I also do not see a wave of new orders magically coming to GD either.

But, on a valuation basis, GD is a bit undervalued just like Lockheed (NYSE:LMT).  But everyone already jumped on LMT bandwagon and pushed its price above 50day, 100day and 200day moving averages!  Still, I am not saying LMT is overvalued.  I am more interested in the smaller rival, General Dynamics.

As you can see from the comparison on Yahoo Finance finance.yahoo.com/q/co GD and LMT are similar in valuation.  Price/Sales ratio is low and reasonable for both, although for a defense company that deals with governments mostly, sales outlook is far from steady and reliable.  I think that the fact that sales outlook is negative in the future, thanks to the government's efforts to cut down on weapons and spending, is already priced in more or less.

With a decent Price/Sales and PEG ratio, I love General Dynamics at least for a short term upside.  I think it is undervalued and neglected relative to Lockheed.

Disclosure: No positions