We’ve opened bullish trade on Raytheon (RTN). In today’s market environment, in which there is increased uncertainty regarding what the Fed’s next move will be and heightened tension in the Middle East as Russia continues to escalate in Syria, investors are looking for defensive stocks, and we think Raytheon is going to benefit from this shift.
If the Fed continues to hold off on raising interest rates, Raytheon is in a strong position to continue attracting income investors with its 2.44% dividend yield. However, this is not RTN’s strongest attribute. Even if the Fed were to move forward and raise interest rates, Raytheon is in a strong position as a defensive stock — because it has both staying power during market pullbacks and because it is a major player in the defense sector — with important military and government contracts. Raytheon is benefiting not only from continued spending on the F-35 program and military sonar and guidance programs, but also from new cyber-security contracts as the global battlefield expands from air, land and sea to the Internet.
Both UBS and RBC Capital have upgraded their recommendations for Raytheon ahead of the company’s Oct. 22 earnings announcement. We expect the stock to continue moving higher and challenge its late-March highs above $113 in the lead up to earnings. The bullish price move should also be accompanied by an increase in implied volatility, which should also benefit a long call position.
‘Buy to open’ the Raytheon November 115 Calls (RTN151120C00115000) for a maximum price of $1.50.
We also continue to hold the Yahoo! (YHOO) puts at this time.
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