And finally, we come to “merchant of death” Northrop Grumman (NOC), a defense firm perhaps best-known for its unmanned drones.
Of course, Northrop Grumman does more than just drones. The company builds an array of defense systems and even offers logistical support and cyber-defense systems.
I come across Northrop Grumman regularly, as it has popped up on the Magic Formula screen off and on for the past several years. For those unfamiliar with it, the Magic Formula was a screen devised by hedge fund legend Joel Greenblatt to find highly profitable companies trading at temporarily low valuations. I’ve used the screen as a “fishing pond” for years and have found some real gems.
Northrop Grumman’s dependence on government contracts at a time when the government is broke and looking to downsize has dampened investor enthusiasm for the stock. It trades for just 11 times earnings and 0.8 times sales.
Yet the company has managed to navigate a difficult political environment deftly and has kept its net income stable even while revenues have been slightly down.
Northrop Grumman recently hiked its dividend by 11% and has raised its dividend for 10 consecutive years. The company also has ambitious plans to buy back about 25% of its outstanding shares by 2015, making Northrop Grumman a model of shareholder friendliness. At current prices, the stock yields an attractive 2.7%.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long DEO and HEINY. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar but also which stocks will deliver the highest returns. The series starts November 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.