General Dynamics Corporation (GD) — The recent bounce in GD stock appears to be offering a good spot to sell or short shares.
The company is one of the world’s largest military contractors and a leading maker of corporate jets. While its aerospace division is showing strong growth, S&P Capital Equity Research warns the gains in this segment will not be enough to offset the losses in the defense segment. Its analysts expect revenue growth to slow from 2% last year to 1% this year.
U.S. defense spending declined 2.4% in 2015, according to SIPRI, which monitors developments in military expenditure worldwide. And Capital IQ is concerned that this trend may continue, which could have a longer-term negative impact on General Dynamics.
Capital IQ rates GD stock a “Hold.” While it raised the 12-month price by $11 to $146 in late April, this is less than 1% above Friday’s close.
GD stock fell 21% from its all-time at $153.76, made in August, to a low of $121.61 in January. A recovery rally followed in which shares ran to a high above $138 by late February. After some profit-taking, GD stock continued its advance, hitting a high of $147.16 last week.
However, my proprietary internal indicator, the Collins-Bollinger-Reversal (CBR), registered a sell signal at the high, which came on increased volume. And Friday’s bounce came on low volume, signifying a lack of conviction among buyers. The projected downside target of $130 is just above the late-March lows.
Investors should sell GD stock if they own shares. Traders should look to sell it short at $144 or higher. If my $130 target is hit, they will book a 10% gain.
However, keep in mind that shares go ex-dividend in late June. Short sellers who hold through it will be responsible for covering the quarterly payment of 76 cents per share (2.1% current yield).