Five Aerospace Investments to Buy Amid Russia’s Invasion, China’s Threats

Paul Dykewicz

[Airbus A380 airplane]

Five aerospace investments to buy amid Russia’s invasion of Ukraine show the reliance on such equities and an opportunity to support companies that are involved in defending civilians from attacks.

The five aerospace investments to buy as Russia’s President Vladimir Putin continues press ahead with the invasion that he ordered on Feb. 24 have niche opportunities within a sector that tends to retain demand even when inflation may flare and the economy may weaken. The five aerospace investments to buy also are among the equities that can withstand threating words from China’s leaders that characterized frail, 82-year-old House Speaker Nancy Pelosi’s visit to Taiwan, among several stops in Asia, as America playing with fire and putting it in enough peril to “perish by it.”

Despite strong differences between the Democrats and Republicans, they largely have been united in supporting the defense of freedom around the world and voting for increased funding toward aerospace programs to protect against threating actions by Russia, China and others. Aerospace companies traditionally have withstood inflationary pressures, slow economic growth, rising interest rates and the uncertainty of election years such as 2022, according to Ron Epstein, the aerospace and defense analyst at BofA Global Research. 

Five Aerospace Investments to Buy Amid Russia’s Attacks, China’s War of Words

The second-quarter 2022 reporting period showed 60% of S&P 500 companies announcing results, with 73% of them delivering a positive earnings per share (EPS) surprise and 66% offering a positive revenue surprise. In addition, the blended earnings growth rate in second-quarter 2022 reached 6.0% for the S&P 500.

“By no means is this an all-clear sign because the market has managed a strong relief rally,” wrote Bryan Perry, head of the Premium Income Pro advisory service, in his weekly update. “The bearish camp owned the narrative and now there is a more positive tone taking shape that is built on the notion that a deep recession will be avoided and good companies will grow, albeit at a slower pace.”

Paul Dykewicz interviews Bryan Perry, leader of Premium Income Pro.

Due to the levels at which this change in sentiment started to shift, confidence is rising that the market can keep climbing and consolidate while investors monitor new economic data to assess the impact of inflation, the strong dollar, the inverted yield curve and Russia’s war invasion of Ukraine on commodities, plus all things China, opined Perry, who also leads the Cash Machine investment newsletter, as well as the Quick Income Trader, Breakout Options Alert and High Tech Trader advisory services. For the first time in many months, the proverbial glass is looking more than half-full for the U.S. equity market, he added. 

Penson Fund Head Chooses ETF as One of Five Aerospace Investments to Buy

An investor who seeks a diversified way to tap into the aerospace sector should consider an exchange-traded fund (ETF), said Bob Carlson, who heads the Retirement Watch investment newsletter. The ETF with the most consistent returns is Invesco Aerospace & Defense (PPA), he added.

Bob Carlson, who leads Retirement Watch, meets with Paul Dykewicz.

The fund seeks to follow the SPADE Defense Index, which is focused on companies that are involved with aerospace and space operations considered important to the defense sector.

Top holdings are Boeing (NYSE: BA), Raytheon (NYSE: RTX), General Dynamics (NYSE: GD), Northrup Grumman (NYSE: NOC) and Lockheed Martin (NYSE: LMT). Boeing is one of the world’s largest aircraft manufacturers, but it has yet to fully recover from the fallout of two 737 MAX aircraft crashes in 2018 and 2019 that killed a combined 346 people. 

A hopeful sign is Delta Air Lines (NYSE: DAL) announcing in July that it would buy 100 Boeing 737 MAX 10 jets worth about $13.5 billion at list price, with an option to purchase an additional 30 of the aircraft. At the Farnborough Airshow in London, Qatar Airways, a state-owned flag carrier of Qatar, announced on July 21 the purchase of 25 Boeing 737 MAX 10 airliners. Even though Boeing still is awaiting regulatory approval to fly the new-generation Boeing 737 MAX aircraft, the manufacturer has amassed orders for more than 1,000 of the planes.

Chart courtesy of www.stockcharts.com

Money Manager Likes Leidos as One of Five Aerospace Investments to Buy

Leidos Holdings (NYSE: LDOS), a Reason, Virginia-based science and technology company that serves civil, aviation, defense health and intelligence industries, still may be known by some people by its former name of Science Applications International Corporation (SAIC). Leidos merged with Lockheed Martin’s (NYSE: LMT) information technology (IT) sector, Information Systems & Global Solutions, in August 2016, to form the defense industry’s biggest IT services provider. 

The merger became one of the largest transactions in the consolidation of the and defense sector, positioning Leidos to work extensively with the U.S. Department of Defense, the U.S. Department of Homeland Security and the U.S. intelligence community, including the National Security Agency (NSA).

BofA placed a $125 price objective on the stock and supported it by stating the value is in line with defense prime contractors, as strong U.S. National Security demand for innovative technologies and solutions and solid free cash flow generation is offset by a lumpy award environment, supply chain pressures in the near term, pressure on pricing and mounting concerns about labor inflation.

Within the defense services industry, LDOS is the largest and most diversified company, said Michelle Connell, a former portfolio manager who heads Dallas-based Portia Capital Management. The company provides scientific, engineering, and technical services to government and highly regulated industries.

Michelle Connell, of Dallas-based Portia Capital Management

The services of Leidos focus on surveillance, cybersecurity, logistics and energy. The company’s customers include the U.S. Department of Defense and the British Ministry of Defense.

With a market capitalization of more than $13 billion, Leidos Holdings is a mid-cap stock, Connell said. However, due to the company’s growth, combined with strong fundamentals and cash flow, it should be considered a Growth at a Reasonable Price Services (GARP) stock that focuses on surveillance, cybersecurity, logistics and energy.

Leidos reported strong results on Aug. 2 that beat revenue and earnings expectations. However, the stock dipped 4% after it reported earnings, possibly due to lighter than expected bookings of future services, she added.

The recent pullback in the company’s share price enhances its merit for potential new shareholders, Connell said. The stock has an upside of about 15% during the next 12 months and offers a dividend yield of 1.4%.

Chart courtesy of www.stockcharts.com

Five Aerospace Investments to Buy Include Hexcel

Hexcel Corporation (NYSE: HXL) is a Stamford, Connecticut-based manufacturer of advanced composite materials for commercial aerospace, space, defense and industrial markets. Its outlook should be aided by enhanced manufacturing orders for commercial aircraft, especially more fuel-efficient commercial jetliners that may be ordered by customers wary about high oil prices.

BofA gave the stock a price objective of $65, partly based on accelerating commercial recovery. Potential upside to the price target could occur if Airbus A350, A32neo, and Boeing 737 MAX production rates continue to ramp up as expected and 787 deliveries resume, according to BofA.

In addition, HXL may trade at a higher premium to the market compared to BofA’s estimates, the investment firm wrote. An increase in oil prices also could boost demand for and provide upside to estimates in the medium term, BofA added.

Risks to underperform include the majority of sales are original equipment manufacturer (OEM) and there is little aftermarket, which may prove problematic if the civil aircraft cycle turns dramatically. BofA cautioned. Hexcel also could be materially impacted if serious complications should arise from new platforms like the Boeing 787 and the Airbus A350. Unexpected cancellations to programs in both commercial and military could materially impact HXL. Any problems with execution, particularly as capacity expands, further could impact results.

Chart courtesy of www.stockcharts.com

TransDigm Named Among Five Aerospace Investments to Buy

TransDigm Group Inc. (NYSE: TDG), a Cleveland-based global producer, designer and supplier of highly engineered aerospace components, systems and subsystems for use on almost all commercial and military aircraft, is another buy recommendation of BofA. 

On May 25, TransDigm Group announced that it had completed its acquisition of Canada’s DART Aerospace, a Montreal, Quebec-based portfolio company of Greenbriar Equity Group, L.P., for roughly $360 million. TransDigm financed the acquisition initially with cash on hand. 

DART is a provider of highly engineered, unique helicopter mission equipment solutions that mainly service civilian aircraft. The company is expected to generate approximately $100 million in pro forma revenues for the calendar year ending December 31, 2022. Approximately 95% of DART’s revenues are derived from proprietary products and about 80% of its revenues come from the aftermarket. The products are commonly used in major commercial rotary-wing platforms, as well as select applications for defense and safety services.

BofA placed a $720 price objective on the stock, partly based on TransDigm’s  strong aftermarket positioning, robust margin performance and solid cash generation. Risks to reaching that target include increased oil prices slowing air traffic growth and therefore aircraft demand to cause a downturn in commercial aviation, BofA wrote.

“However, if the commercial aerospace and business aviation jet recoveries are better than we are forecasting, earnings could fare better than our projections and the stock could perform better,” BofA wrote in a research note. “If margins fare better than we are forecasting, there could also be upside potential to our valuation.”

Chart courtesy of www.stockcharts.com

Triumph Group (TGI) Wins Spot With Five Aerospace Investments to Buy

Triumph Group (NYSE: TGI), headquartered in Berwyn, Pennsylvania, designs, engineers, manufactures, repairs and overhauls aerospace and defense systems and components. The company serves the global aviation industry, including OEMs, as well as a spectrum of military and commercial aircraft operators.

The Triumph Interiors unit provides integrated design and manufacturing of thermo-acoustic insulation systems, air distribution system ducting, thermoplastic interior components and other aircraft interior composite assemblies for major aerospace OEMs.

On July 1, Triumph Group, Inc. announced it completed the sale of its Aerostructures business in Stuart, Florida, to Daher Aerospace Inc., a subsidiary of Compagnie Daher. The Stuart business specializes in the assembly of large, complex metallic structures such as wing and fuselage assemblies, and has approximately 400 employees.

The closing of the sale marked Triumph’s 16th divestiture since beginning its transformation in 2016. Triumph has exited its build-to-print machining, fabrication, metal processing and large structure assembly to follow its new strategic plan.

The company aims to be a pure-play provider of actuation, engine controls, gearboxes and accessory drive units, mechanical and thermal systems and interiors. Triumph was relieved of outstanding customer advance obligations totaling $104 million due to the transaction. 

On June 29, Triumph Group announced that its Interiors business was awarded a contract from Mammoth Freighters for composite air distribution ducts on Boeing 777 Passenger to Freighter (P2F) conversions. Triumph Interiors will provide manufacturing and engineering support services for the Mammoth Freighters’ re-designed air distribution ducting system in the cargo compartment. With the recent increase in Passenger to Freighter conversions in the industry, Mammoth Freighters is establishing its position in 777 conversions and has commitments through 2026 and beyond.

BofA gave Triumph a price objective of $30, reflecting the commercial aerospace recovery ahead, as well as improving profitability. Better-than-expected execution could provide upside. Higher-than-expected cash generation could increase capital returned to shareholders, too, BofA wrote.

Chart courtesy of www.stockcharts.com

Risks to reaching that price target include rising oil prices slowing air traffic growth and therefore aircraft demand, causing a downturn in commercial aviation. A slump in commercial aviation, due to an exogenous factor such as a terrorist attack or natural business cyclically, also could adversely affect financial results, BofA wrote.

“Given that aircraft are priced in dollars, an unexpected rapid devaluation in the dollar could significantly affect order activity,” BofA added. “Revenues are heavily dependent on Boeing. Any material change in a relationship with Boeing could affect the company’s financials.”

U.S. COVID Deaths Near 1.028 Million

Aerospace production and sales are affected by rising COVID-19 cases and deaths that can restrain demand. As a result, investors should pay attention to the latest trends.

U.S. COVID-19 deaths climbed for the third consecutive week by more than 3,000 to 1,030,997, as of Aug. 3, according to Johns Hopkins University. Cases in the United States jumped by almost 900,000 for the third straight week to 91,589,488. America still holds the undesirable distinction as the country with the largest number of COVID-19 deaths and cases.

Worldwide COVID-19 deaths jumped by more than 16,513, up from the prior week’s 14,600, but down from 19,000 in the week before that one, totaling 6,405,538 as of Aug. 3, according to Johns Hopkins. Global COVID-19 cases rose 7.06 million, down from 7.2 million during the prior week and 7.5 million the week earlier, hitting 579,463,990 by Aug. 3.

Roughly 78.8% of the U.S. population, or 261,654,61, have received at least one dose of a COVID-19 vaccine, as of July 27, the CDC reported. Fully vaccinated people total 223,245,563, or 67.2%, of America’s population, according to the CDC. The United States also has given at least one COVID-19 booster vaccine to 107.9 million people, up 400,000 in the last week.

The five aerospace investments to buy offer a defensive way to invest due the rising demand for goods and services in the industry. Despite the highest inflation in 42 years, a second consecutive 0.75% Fed rate hike and other rate increases that may follow to follow, the trajectory of the five aerospace investments to buy appears to be ascending amid Russia’s attacks on Ukraine and China’s sharply worded complaints about an octogenarian member of Congress stopping in Taiwan during her travels through Asia.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many othersCall 202-677-4457 for multiple-book pricing.

share on:

Like This Article?
Now Get a FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE


img
share on:

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader
LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader
LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener
LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program
LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader
LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor
LEARN MORE HERE