Shoot for the Stars With 7 High-Fliers in Airlines, Aviation & Aerospace

Troubles with the 737 MAX at Boeing have cast a pall over the entire aviation sector. Nevertheless, these seven experts, and contributors to MoneyShow.com, find value in a variety of potential high fliers, including air carriers, aerospace parts, military contractors, a leading drone maker and a future space flight operator. Carl Delfeld, Cabot Global Stocks Explorer The commercialization of space has captured the imagination of many, including those with a lot of cash to burn; since 2000, Goldman Sachs estimates that $13.3 billion has been invested in space startups. Elon Musk spent $100 million in 2006 to launch SpaceX. Jeff Bezos is reportedly injecting $1 billion a year into Blue Origin. Blue Origin hopes to go to the moon for passenger trips by 2024 while Musk has Mars in his sights, with SpaceX planning its first cargo mission to the red planet in 2022. A crewed mission is to follow a couple of years later. One of the most intriguing segments of the space economy is space tourism. Prepaid tickets for 90-minute suborbital flights in 2020 with Virgin Galactic went for a cool $250,000. Virgin Galactic began trading on the NYSE on Oct. 28 at $11.75. Virgin's flamboyant and well-connected entrepreneur Sir Richard Branson has brought in heavy hitters like Chamath Palihapitiya, a billionaire tech investor and former Facebook executive. More than 600 people from 60 countries have secured a spot on one of Branson's first space flights by making a deposit representing half the total fare price. Virgin has an additional 2,500 people on the waiting list. This 90-minute flight will escape the Earth's atmosphere allowing passengers to experience weightlessness and see the planet's rim from space. Virgin Galactic was founded in 2004 and has been at the forefront of commercial space activity and produced the first private space vehicle to put humans into space. In 2010, George Whiteside joined the team from NASA and he is currently CEO. In 2016, the company was awarded a commercial operator license by the FAA. The company's third-quarter earnings results, released Nov. 12, revealed a net loss of nearly $51 million for the quarter and a loss of $138 million for the year to date. The chief risk is of course the possibility of a failed or unsuccessful flight, which would, without question, hit the stock hard. For this reason I see Virgin as an aggressive idea and recommend a 20% trailing stop loss. Jim Corridore, CFRA Research's The Outlook We maintain our Buy opinion on shares of United Airlines as CEO Oscar Munoz will step down in May 2020, to be replaced by Scott Kirby, current United president. We applaud this move. While United has made operational and financial strides over the past year and a half, it still has the stigma of poor customer service in the wake of high-profile PR incidents, including the dragging off an aircraft of Dr. David Dao in April 2017 and more recently, Munoz's statements that its passengers are miserable when they board United planes due to the airport experience. We think Kirby, with 30 years' experience, is an operational and planning expert who will improve financial and operational execution. At the same time, a change in leadership could allow United to improve how it relates to its customers, as we think Munoz was out of touch. However, Munoz will stay on as executive chairman of the board. Concurrently with this news, we have raised our 2019 EPS estimate to $12.07 from $12.03. Ingrid Hendershot, Hendershot Investments Formed in 1952, General Dynamics has grown both internally and through acquisitions to become a market leader in the aerospace and defense industry. Under the capable leadership of Phebe Novakovic, appointed as the company's CEO and chairwoman in 2013, each business unit is responsible for its strategy and operational performance while the lean staff at corporate headquarters sets the company's overall strategy and is responsible for allocating and deploying capital. In 2018, 65% of General Dynamics' revenue was from the U.S. government, 11% was from non-U.S. government customers and 24% was from commercial customers. The company's sustained focus on continuous operational improvements has generated an exceptional 26.4% average return on shareholders' equity during the past five years. Net earnings have compounded at a 6% annual rate since 2014 with EPS growing at an even faster 9% pace due to the company's share repurchase program. The company's robust cash flow generation provides the fuel for share buybacks, dividends and a disciplined acquisition strategy to spur future profitable growth. During the past three years, the company spent $5.3 billion on share repurchases, reducing its share count by about 8%. Since 2014, dividends have compounded at an 11% annual clip with the firm raising its dividend by 10% in 2019, marking the 22nd annual increase. With profitable growth, exceptional returns on shareholders' equity, robust free cash flow and disciplined capital deployment, General Dynamics is a high-quality company. Investors seeking solid long-term returns should salute the General! We rate the stock a buy. Eddy Elfenbein, Growth Stock Advisor We recently got good earnings news from AeroVironment . On Dec. 3, the company reported fiscal second-quarter earnings of $0.34 per share. I was very impressed by these results. The company beat Wall Street's consensus by $0.05 per share, and quarterly revenue rose 14% to $83 million. If you're not familiar with AeroVironment, the company specializes in unmanned aircraft technology. A lot of their business comes from the government, especially the military. Business is going very well for the drone company. CEO Wahid Nawabi said, We made significant progress across our portfolio during the quarter through launching our new Puma LE system, winning international orders worth more than $20 million, and achieving successful first and second flights of the solar-powered HAWK30 HAPS unmanned aircraft system. For all of 2020, AeroVironment expects earnings ranging between $1.47 and $1.67 per share on revenue of $350 million to $370 million. I expect more good news from the company. Chris Quigley, The Prudent Speculator Delta Air Lines recently hosted its investor day, where the company offered guidance for the balance of 2019 and for 2020. For 2019, Delta expects to see $47 billion of revenue, with EPS coming in between $6.75 and $7.25. Revenue growth for 2020 is expected to be between 4% and 6%, equating to roughly $49 billion, a result of company-wide efforts to tailor services and exceed customer expectations day in and day out. CEO Ed Bastian said, We've got a great opportunity for the future and we look forward to an exciting 2020 and importantly really look forward to being able to talk to the long-term opportunities. We appreciate the effort that Delta has put in to revamp the customer experience. We think the airline has done well, reducing denied boardings and adjusting schedules in advance of bad weather, measures that help both profitability and retention. Delta continues to strive to woo business travelers by renovating lounges around the world, offering gate transfers via Porsche and serving top-notch food, to ensure that the highest-margin customers return. The company also just announced that it was buying a minority stake in private-jet operator Wheels Up, which along with Delta's fleet of 190 corporate aircraft, bolsters DAL's efforts to go after premium passengers. With the stock trading for just 8.2 times next 12-month earnings and yielding 2.8%, our Target Price has been edged up to $79. Richard Moroney, Dow Theory Forecasts Northrop Grumman -- a leading a global aerospace company -- has grown its dividend in each of the last 16 years, boosting the payout at an annual rate of 13%, capped by a 10% hike earlier this year. The defense contractor, which yields 1.5%, allocates only about one-fourth of its earnings to the dividend, which leaves plenty of room for future growth. Over the last 12 months, Northrop increased sales 17%, per-share profits 11%, and operating cash fl ow 38%. Analyst targets imply growth of 6% for sales, 13% for per-share profits, and 14% for operating cash flow in 2020, continuing the type of operating momentum that can support double-digit growth in the dividend. Despite its excellent growth, Northrop trades at 18 times trailing earnings and 15 times the 2020 target, both valuations at least 9% below the industry norm. Northrop is a long-term buy. Mike Cintolo, Cabot Top Ten Trader We've labeled TransDigm as the best growth stock few investors have heard of, with a unique, dependable story and a management team that's proven adept at making the right moves. The firm makes highly engineered components for the aerospace industry, with revenues split relatively evenly between defense, commercial OEM and commercial aftermarket sales. The most attractive feature here is that TransDigm is one-of-a-kind outfit -- around 90% of the widgets it sells are proprietary, and in 80% of the cases, it's the sole-source provider! Combined with the aftermarket business, that means the company has a steady, dependable (excellent profit margins here) and very long runway of growth opportunities, all of which is like catnip to institutional investors. Recent revenue growth has been bolstered by the huge acquisition of Esterline (M&A is a key driver of growth over time), but organically, the top line was up 8% in the latest quarter (10.5% for the past year). And, really, the attraction here isn't just the fourth quarter or 2020, but the fact that little is standing in the way of TransDigm cranking out mid-teens earnings growth for many years to come. Technically, the stock staged a powerful breakout in January of this year, which was a clue that the stock was a leader. We're OK starting a small position here and adding more on a decisive push above $585. As for the high price, don't worry about it -- just buy fewer shares.

Shoot for the Stars With 7 High-Fliers in Airlines, Aviation & Aerospace

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