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4 Overlooked Aerospace Stocks to Buy, 2 to Avoid

One of the market sectors that I rarely hear talked about is the aerospace sector. When I browsed through some of the stocks in the aerospace sector, I found a couple that were well worth reviewing. This article will examine six stocks in the aerospace sector that might be of interest to you.

Astronics Corporation (ATRO) ATRO has a market cap of $427.75 million with a price to earnings ratio of 21.50. The stock has traded in a52 week range between $19.70 and $37.00. The stock currently trades around $35. The company reported third quarter revenues of $56 million compared to revenues of $50 million in the third quarter of 2010. Third quarter net income was $6.6 million compared to net income of $4.6 million in the third quarter of 2010.

One of Astronics' competitors is the Heico Corporation (HEI). HEI is currently trading around $58 with a market cap of $2.42 billion and a price to earnings ratio of 35.18. HEI pays a dividend which yields 0.2% versus Astronics which does not pay a dividend.

Astronics designs and markets products for the aerospace and defense industry. The company has been able to grow its earnings, and in the third quarter, it increased year-over-year revenues by 13% and its net income by 43%. The company’s stock price has performed well and is up by 54% over the last 52 weeks and 90% over the last three years.

On November 30, in an effort to further increase its earnings, the company purchased Ballard Technology for $24 million. Ballard technologies produced avionics interface products and had annual revenues of $11 million. Astronics has been grabbing new orders and one of them was by the Cessna Aircraft Company which selected Astronics to install illuminated instrument panels in their airplanes. Astronics should also benefit from the recent large new airplane orders that its customers Boeing (BA) and Airbus (EADSY.PK) have received. Astronics’ future earnings look bright.

Aero Viroment Inc. (AVAV) AVAV has a market cap of $670.95 million with a price to earnings ratio of 19.22. The stock has traded in a 52 week range between $24.01 and $36.49. The stock is currently trading around $31. The company reported third quarter revenues of $80 million compared to revenues of $63 million in the third quarter of 2010. Third quarter net income was $6.6 million compared to net income of $260 thousand in the third quarter of 2010.

One of AVAV’s competitors is L-3 Communications (LLL). LLL is currently trading around $65 with a market cap of $6.51 billion and a price to earnings ratio of 7.48. LLL pays a dividend which yields 2.7% versus AVAV which does not pay a dividend.

AVAV’s primary business is to develop and manufacture unmanned aircraft systems. AVAV’s unmanned aircrafts have increased in popularity, which helped the company to increase its third-quarter year-over-year revenues by 26% and net income by 2,438%. The company’s stock price is up by 16.38% over the last 52 weeks but down by 11% over the last three years.

The company is the leading supplier of small drone aircraft to the U.S. military and its revenues are highly dependent on the budget allocations to the Department of Defense. I believe that uncertainty about how government budget cuts will affect the Department of Defense is the reason that the stock has not performed better. With the Middle East wars winding down and the possibility of military budget cuts, there is a lot of uncertainty about AVAV’s future earnings.

Teledyne Technologies Inc. (TDY) TDY has a market cap of $1.96 billion and a price to earnings ratio of 7.76. The stock has been trading in a 52 week range between $43.41 and $60.91. The stock is currently trading around $53. The company reported third quarter revenues of $496 million compared to revenues of $410 million in the third quarter of 2010. Third quarter net income was $34 million compared to net income of $30 million in the third quarter of 2010.

One of TDY’s competitors is the Transdigm Group Inc. (TDG). TDG is currently trading around $95 with a market cap of $4.77 billion and a price to earnings ratio of 29.84. Neither TDG nor TDY pays a dividend.

TDY provides electronic equipment for the aerospace and defense industry. Over the last four years, TDY's revenues have increased by 1% and its net income has increased by 22%. In the third quarter, the company’s year-over-year revenues were up by 21% and net income by 12%. The company stock price is up by 20% over the last 52 weeks and 35% over the last three years. The stock is up by 20% over the last 52 weeks but has been flat over the last two months. TDY does not pay a dividend, and it does not have any catalyst which could drive up the stock price. TDY also faces possible Department of Defense budget cuts. The upside in this stock could be down the road rather in the near term.

Hexcel Corporation (HXL) HXL has a market cap of $2.3 billion with a price to earnings ratio of 19.94. The stock is currently trading around $23. The company reported third quarter revenues of $352 million compared to revenues of $294 million in the third quarter of 2010. Third quarter net income was $32 million compared to revenues of $15 million in the third quarter of 2010.

One of HXL’s competitors is B E Aerospace Inc. (BEAV). BEAV is currently trading around $37 with a market cap of $3.77 billion and a price to earnings ratio of 18.45. Neither BEAV or HXL pays a dividend.

HXL develops products for commercial and military airplanes. In 2010, the company had flat revenues but increased its net income by 37%. In the third quarter, the company increased year-over-year revenues by 19% and net income by 106%. The company’s stock performance has been excellent. The stock is up by 37.6% over the last 52 weeks and 219% over the last three years. HXL get most of its business from commercial aerospace companies. The company future earnings outlook is strong because it supplies products to companies like Boeing and Airbus which have a backlog of commercial airplane orders. On December 12, CNBC stock analyst Jim Cramer endorsed the stock. He believes that the stock should be trading at a premium instead of a discount. I agree with Jim Cramer.

Lockheed Martin Corporation (LMT) LMT has a market cap of $24.5 billion with a price to earnings ratio of 8.92. The stock has traded in a 52 week range between $66.36 and $82.43. The stock is currently trading around $76. The company reported third-quarter revenues of $12 billion compared to revenues of $11 billion in the third quarter of 2010. Third-quarter net income was $700 million compared to net income of $560 million in the third quarter of 2010.

One of LMT’s competitors is the Raytheon Company (RTN) RTN is currently trading around $45 with a market cap of $15.52 billion and a price to earnings ratio of 9.18. RTN pays a dividend which yields 3.8% versus LMT’s whose dividend yields 5.2%.

LMT designs and manufactures aerospace products for the military and for NASA. The company increased year-over-year revenues by 7% and net income by 25%. LMT has a long history of paying dividends. The company has paid a quarterly dividend since 1984 and has increased its dividend five times by 250% over the last five years. The company’s stock price has increased by 10% over the last 52 weeks and 12% over the last three years.

LMT is one of the world’s largest defense contractors. The company has very little completion as it provides unique products such as F 16, E22 and F-35 fighter planes. LMT is not a fast growing company, but it offers investors consistent earnings, along with a handsome $3.00 dividend. The stock is cheap, and I believe that it is an excellent long-term investment.

Boeing Company (BA) BA has a market cap of $51.96 billion with a price to earnings ratio of 13.83. The stock has traded in a 52 week range between $56.01 and $80.65. The stock is currently trading around $70. The company reported third quarter revenues of $17.7 billion compared to revenues of $16.9 billion in the third quarter of 2010. Third quarter net income was $1.1 billion compared to net income of $837 million in the third quarter of 2010.

One of BA’s competitors is the European Aeronautics Defense and Space Company (EADSY.PK). EAD is currently trading around $29 with a market cap of $23.3 billion and a price to earnings ratio of 22.63. EAD does not pay a dividend versus BA whose dividend yields 2.4%.

BA’s primary business is the production of commercial and military aircraft. In 2010, the company's year-over-year revenues were down 6%, but its net income was up by 153%. In the third quarter, the company’s year-over-year revenues were up by 4.7% and its net income was up by 31%. BA's stock has performed well and is up by 10.3% over the last 52 weeks and 94.8% over the last three years. The company has paid quarterly dividends since 1962 and has increased its dividend three times by 14% over the last five years. BA seems to have all the business they can handle. T

he company has recently received several large orders including an order from Southwestern Airlines for 150 new 737s. The order is worth around $19 billion. On December 12, Morgan Stanley raised its rating on BA to overweight, because they believe that the company will be able to quadruple its 2012 cash flow and increase its dividend. Also on December 12, the company announced that it was increasing its dividend by 5% to $1.76 per share. BA is in an upward trend.

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