Amid unrest in Egypt, a war in Afghanistan and a continued U.S. troop presence in Iraq you would think that defense stocks and the aerospace industry is doing quite well. Unfortunately for stocks like Boeing (NYSE: BA), Raytheon (NYSE: RTN), ITT Corp. (NYSE: ITT) and General Dynamics (NYSE: GD) that’s not the case. These are all stocks to sell.
The reason covers a host of issues. These include politicians taking a harder look at defense spending as America’s debt spirals out of control, general company mismanagement and trouble with new technologies, just to name a few. As you’ll see, each company has it’s own specific problems that make it a bad stock to buy right now.
Here are the specifics of these four aerospace and defense stocks to sell:
Boeing (BA)
Boeing (NYSE: BA) is famous for its involvement with the design, manufacture and sale of commercial airplanes and military aircraft. It also dabbles in satellites and missile defense, among otherthings, but planes are what Boeing does. So the fact that its next-generation 787 Dreamliner can’t seem to get completed after years of delays is not just a black eye but a troubling hint of how far this aerospace stock has fallen. Over the past three months, BA stock has barely broke even, compared to gains of about +9% for the S&P 500 and Dow Jones. The stock is cruising near a 52-week high, but could very well crash land soon.
Raytheon (RTN)
Next on the list is Raytheon (NYSE: RTN), a powerhouse in “command and control” mission communications, as well as the cybersecurity and homeland security. From high-tech training simulators to radiation detecting gear, RTN has a great run after 9/11 as politicians focused on making America safe at any cost. Now that times are lean, however, RTN isn’t seeing quite the success. Over the past 12 months, RTN stock is down -8%, while the broader market has gained +18%. Earnings estimates are also down slightly from last year as analysts are projecting EPS of $1.12 this quarter, when RTN posted an EPS of $1.18 this quarter last year.
ITT Corp. (ITT)
Another stock that should be sold is ITT Corp. (NYSE: ITT) which designs, manufactures and sells a wide range of engineered aerospace and defense products across the globe that include air traffic control systems and satellites . Though the stock took root as International Telephone and Telegraph, but has become a diversified conglomerate that dabbles in 21st century communications as well as water flow technologies and industrial products. But this disparate business is a hinderance to ITT — and a reason ITT recently announced a transformation to separate the company into 3, stand-alone, publicly-traded, and independent companies. Considering the company split into 3 parts just 15 years ago, you have to wonder what strategy — if any — company executives truly have. ITT has slightly underperformed the market in the last 12 years, but that’s accounting for a 15% pop in share price after the reorganization plan. Before that, shares were essentially flat over the last 12 months. Long story short – sell ITT before the split up, and don’t consider buying any of the spin-offs for some time.
General Dynamics (GD)
Rounding out the list of stocks to sell is General Dynamics (NYSE: GD). GD is known around the world for its products in business aviation, combat vehicles, weapons systems and information systems. While the stock may be widely known, it should not we widely owned. Since the end of April, GD is down -3%, compared to strong gains by the broader markets. But despite underperformance of the market, GD stock has been moving up strongly in January. That to me is a signal to get out while the getting is good as the stock approaches a 52-week high. Take the pop after earnings and head for the hills if you own General Dynamics. If not, don’t go near it for now.
As of this writing, Louis Navellier did not own a position in any of the stocks named here.
