Austin Lieberman's avatar
$457.1m follower assets
What's Your Favorite Defense Stock?
Curious if anyone is considering $RTX $NOC $LMT or $BA as we enter an era of increased defense spending
RTX
13 VotesPoll ends on: 06/28/22
$LMT Technical Analysis Projection
$LMT has held up really well compared to the overall market, but it is showing MAJOR warning signs now. First, we see a bearish harami candle on the weekly with bearish divergence on RSI, two bearish indicators which point to more downside.

If this downside plays out, we should get a test of the $390s area. This stock does not move quickly, so a test of the $390s could test a few months as this is on the weekly chart.
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$AJRD Left Behind
Remember when Lockheed Martin $LMT announced their intent to acquire Aerojet Rocketdyne $AJRD and the FTC sued to block the deal? Ever wonder why Lockheed was willing to pay a 25% premium for the company? We'll let's take a quick look at this little rocket company.

The primary business of $AJRD is rocket propulsion systems. In terms of competition in this field, it is quite dense.

However, $AJRD is the only systems maker to service and build all 4 types of propulsion systems.

In terms of where their revenue comes from it's basically all government contracts. However, it is pretty diversified across various departments.

$AJRD has a fairly linear growth path providing propulsion systems not only for defense-based rockets but also for space exploration rockets in the future.

As for why Lockheed Martin wanted to acquire the company the explanation is somewhat obvious. They already have several large contracts with the company to build the propulsion/engine systems for Lockheeds rockets.

The initial announcement of $LMTS intent to acquire caused $AJRDS stock to jump 25%.

Unfortunately given the fact that $AJRD is the last independent missile propulsion provider the FTC sued to block the deal.

This caused the stock to drop about 18% and overall the company has fallen ~25% from its post-deal-announcement highs.

While Lockheed won't be able to own it I have been looking at it for quite a while. Just look at the consistency of sales growth and the EBITDAP Margin growth.

Unfortunately, Cash Flow seems to be a problem, and probably worth diving a little deeper to see what's going on there.

Overall I think $AJRD is a fairly overlooked company producing steady returns for shareholders by consistently growing sales and winning contracts from both the US Government and other Government Contractors.
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Nathan Worden's avatar
$318.7m follower assets
You don't want to miss the Commonstock weekly email tomorrow...
The featured investor is beating the market by over 11% year to date πŸ™Œ πŸ“ˆ

How did they accomplish this?

By buying the dip on Lockheed Martin $LMT after a poorly received earnings report on October 25th, 2021 that caused the stock to drop over 12% in a day.

Check out the weekly email tomorrow to see who it is, and to hear more about their reasoning for the trade.

Who do you think it is?
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Luka πŸ¦‰'s avatar
$96.9m follower assets
Earning Presentations πŸ“Š
Last 2 weeks of Earning Presentations for the stocks in my portfolio.
Maybe some of you can be interested in πŸ‘‡

Johnson & Johnson $JNJ

Lockheed Martin $LMT


Procter & Gamble $PG

AT&T $T

Sonoco Products $SON

Genuine Parts Co. $GPC

Kimberly-Clark $KMB (report only)

Verizon $VZ (infographic)

Coca-Cola $KO (report only)


PepsiCo. $PEP (report only)

Archer Daniels Midland $ADM

3M $MMM

Kraft-Heinz $KHC

Microsoft $MSFT (ppt presentation)

Essex Property Trust $ESS (report only)

AvalonBay $AVB

The Southern Company $SO

Qualcomm $QCOM

Altria $MO

Intel $INTC

McDonald’s $MCD (report only)

Now without Fincredible, I need to do the dirty work myself 🀣
$LMT impacted by supply chain issues, still delivered solid results. Future contracts are key. Best of breed company in the defense sector.

Had a decent position, but sold in early February, bc I didn’t believe in war. Stock obviously overvalued now, would wait for a pullback.
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Are there any other defence aerospace, arms, defence, and information security companies that are on your watchlist? I find that this sector can be tricky in terms of transparency.
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Using Dividend Yield As An Indicator of Value
@emf posted earlier today a question asking investors how they decide to add to a position or start a new position. I responded with how I use the dividend yield to gauge if a stock is over-valued or under-valued at its current price and wanted to share that information with my followers in case you didn't catch his post! So read below my response 😎

"Looking at financial statements is a must, but since you are already comfortable with that I will share with you another temperature check I use to gauge if it is a good time to buy or not.

As a dividend investor, I like to look at the stock's current yield compared to its average yield over the last 5 years. Many dividend stocks trade within a range of their dividend yield. Stocks swing in price due to short term earnings reports or news headlines that cause prices to jump or fall, sometimes dramatically. But as time continues and long term business prospects become the focus once again, price and thus the yield will revert to the mean (assuming that the price event doesn't become the new norm for the stock).

So for example, $LMT had a poorly received earnings report last October that caused the stock to drop more than 10%. This made $LMT's dividend yield reach almost 3.5%, almost a whole 1% higher than their 5 year average of 2.39%. The earnings report did not contain anything that was concerning for the long term success of the company, so I took this opportunity to buy the dip. Since then the stock has gone up almost 40%. It regained its 10% dip and then rocketed higher from the onset of the Ukraine situation.

Hindsight 20-20 makes $LMT look good. So take this concept and apply it to currently beat down companies and assess if their longevity has changed for any reason.

$MMM is a stock I have my eyes on. Their current yield is 0.9% higher than its average. They have a lot of uncertainty right now due to their legal liabilities surrounding the earplug and PFAS lawsuits. While these lawsuits are significant it will not put them out of business, so this could be a good time to buy.

$SBUX is another opportunity right now. They are at a 52 week low and their current yield is about 0.5% higher than their 5 year average. $SBUX is having issues with CEO movements and unionization efforts currently. Are these long term issues that will affect the success of the company? If you think not, this could be a great time to add.

So in summary, when I want to add to a position or build a new position, I will look at the yield compared to the average yield and use that as a gauge to determine if the price is undervalued or reasonably valued. I'll feel comfortable buying at those points, but if it appears to be over-valued I will hold off."
Scoreboard Pick of the Week - $RTX
Each week I do a review of a stock I purchase or one that is at the top of my Scorecard. I did not make any adds this week, so I will be reviewing Raytheon Technologies, $RTX. I currently hold $RTX in my Taxable Portfolio.

Raytheon is an aerospace and defense conglomerate. Raytheon Technologies researches, develops, and manufactures advanced technology products in the aerospace and defense industry, including aircraft engines, avionics, aerostructures, cybersecurity, guided missiles, air defense systems, satellites, and drones. The company is also a large military contractor, getting a significant portion of its revenue from the U.S. government - Wikipedia

Raytheon's primary competitors in the space are Lockheed Martin ($LMT) and Northrop Grumman ($NOC).

Raytheon Technologies was formed by the merger of Raytheon Company and United Technologies in 2020.

Since the merger in 2020, revenues have increased but profits have waffled.

Revenue:
2020 - $56.59B
2021 - $64.39B

Earnings:
2020 - ($3.52B)
2021 - $3.86B

Dividend:
2020 - $1.90
2021 - $2.04 (+7.4%)

Some history on my $RTX position:
  • Initial Purchase Date - 5/8/2020
  • Average Cost Basis - $59.24
  • Current Unit Price - $100.98
  • Price Appreciation (vs S&P) - +72.12% (+18.51%)
  • EPS - $2.58
  • P/E - 39.48
  • Annual Dividend - $2.04
  • Dividend Yield - 2.02%
  • Yield on Cost - 3.44%
  • Portfolio Weighting - 0.58% (1.25% target)
  • Scoreboard Scorecard Rating - 4/5
​
So how does $RTX achieve the 4/5 on my Scorecard?
  • Stock Price Appreciation (+1)
  • Having a dividend yield greater than my portfolio average (+0.5)
  • Underweight versus holding target (+1)
  • P/E under 50 (+0.5)
  • Personal Conviction Score (+1) - Just updated last weekend
​
Raytheon has been a major player in the defense industry for many years. Now that the merger has settled and the business is starting to stabilize, I am excited to see how earnings continue to grow in the future. With the recent developments in Europe, I have increased my Conviction Score to High - in anticipation of larger scale developments. This change bumped $RTX up from a mid range 3.5 on my Scorecard to a highly rated 4.

Do you hold $RTX? If not, what is your favorite Defense stock?
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My buddy works for $RTX. It’s cool they’re paying for his masters degree from USC, but he says the amount of red tape is mind-numbing. Makes sense on gov contracts but he says it makes it so frustrating when to order a pack of screws they have to go through multiple layers of management and end up paying $60 from an approved vendor when they could go to Home Depot and get it for $5. Just interesting to me how gov work never tends to be efficient/waste minimizing
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