Almost no stock has been safe to hide out in, as sellers hit virtually every name they can find while volatility rockets higher. Northrop Grumman (NYSE:NOC) is no exception to this either. Unlike when geopolitical worries sent NOC stock and its peers higher in January, their defense systems do little in the way of the rapidly spreading coronavirus.
The virus originated in China and virtually forced the country’s economy into a temporary pause. That pause will have a rippling impact, as product demand out of China temporarily dries up and as Asian supply chains disrupt fulfillment in other parts of the world.
However, now that the virus is beginning to spread throughout the rest of the world, equities are getting hit even harder. Northrop Grumman shares are struggling amid the selling pressure. As you’ll see on the charts below, this name is failing to hold some key support marks.
On Feb. 28, Northrop Grumman put in a low of $313.98. Should the stock break below that mark and fail to reclaim it, it opens up another set of downside levels to keep an eye on.
Trading NOC Stock
As you can see on the daily chart above, Northrop Grumman has been breaking below some of its key moving averages. Further, it has put in a lower high, allowing a short-term downtrend mark (blue line) to form. However, given the current market environment, these observations are not too surprising.
What’s worth pointing out is the stock’s price action near the 200-day moving average. Highlighted on the chart with blue circles, it’s clear when NOC stock struggles with the 200-day. For bulls, they’ll want to see shares reclaim this mark. That will allow for a rally up to the $355 to $360 area, where investors will find the 50-day and 100-day moving averages.
Over this area puts $380 resistance on the table. Now let’s look at the weekly chart.
I actually like the weekly chart here. NOC stock is trapped between the 50-week and 100-week moving averages. Twice now, the stock has been bid up off the lows each week, leaving long weekly wicks.
A move over $337 (the 50-week) puts bulls back in control on a weekly basis. It could be the catalyst for a move up to $360, provided Northrop Grumman can clear the 200-day moving average on the daily chart. On the downside, a move below the 100-week moving average would be a sign of caution for bulls. It would put $300 on the table as well as the 200-week moving average.
Valuing Northrop Grumman
Amid some market turmoil events — like in January, with escalating tensions in the Middle East — defense stocks can outperform the market. But in “normal” market volatility, like now, NOC stock and others often come under pressure. That’s even as the U.S. and global militaries continue to spend plenty on defense.
Have a look at the expected U.S. military spend in the coming decade, courtesy of the U.S. Congressional Budget Office.
For Northrop Grumman, analysts expect revenue to grow 5.4% this year to $35.7 billion. 2021 estimates call for an acceleration up to 6% growth, although that can always change — and will be a focus with the presidential election later this year.
On the earnings front, the growth is a bit better. Analysts expect profits to grow 9.9% this year to $23.31 per share, before accelerating to 12.6% growth next year. Based on current estimates, it leaves NOC stock trading at just 14 times earnings.
That’s actually pretty reasonable for a stock with roughly double-digit earnings growth this year and next year. Of its peers, Northrop Grumman is technically the cheapest, although Raytheon at 14.6 times earnings isn’t much pricier. Lockheed is more expensive at nearly 16 times earnings.
Here’s the bottom line: NOC stock is reasonably priced and has decent growth. Using the technicals can help limit investors’ risk. Below the 100-week moving average is reason for short-term caution. Above it and bulls may feel more confident.