These Aviation & Space Plays Are Looking Up

The outlook for commercial airlines is heavily dependent on the public's willingness to travel. There are, however, various aerospace and aviation sectors -- from military jets to space travel -- that are unaffected by leisure travel demand. Here are several ideas to consider from MoneyShow.com contributors. Prakash Kolli, Dividend Power General Dynamics Corp. is one of the major prime defense contractors. Its stock is trading at prices last seen in 2014-2016. The main difficulty for General Dynamics is the business jet market. The company produces Gulfstream business jets. Other business segments focus on command and control, cyber, communications, and IT. Its main challenge right now is the aerospace segment. A decline in private flights will negatively impact the aviation services business in the near-term. On the other hand, U.S. defense spending is robust, and it is likely to remain so for the next few years. This bodes well for future earnings. For investors interested in income and dividend growth the stock is yielding approximately 3.0% at the moment. General Dynamics is also a Dividend Aristocrat, having raised the dividend for 29 straight years. The stock is trading at a forward price-to-earnings ratio of ~12.1. This is much lower than the average multiple of the S&P 500 at ~21X. The current valuation is also lower than trailing 10-year average of approximately 14.0. The company's defense segments are performing well. The business jet market for General Dynamics will eventually recover as the U.S. economy recovers and airline travel returns to a more normal footing. This may take many months to a couple years and the timing is, of course, uncertain. However, I view the stock as a long-term buy. Carl Delfeld, Cabot Global Stocks Explorer Billing itself as the First and Only Public Company Focused on Commercial Human Spaceflight, the Virgin Galactic story is compelling, with a first-rate management team. Galactic plans to send groups of paying customers on brief flights to the edge of space. Perhaps even more important to its future than space tourism is its plan to launch point-to-point hypersonic flights. SPCE still plans to make its first commercial space-tourism flight this year, and took a step forward with two test flights from its New Mexico spaceport in the first quarter. Richard Branson's sale of 2.6 million shares has taken some steam out of the stock; the sale -- which netted in the neighborhood of $500 million - reduced the founder's stake by about 22%. If you have not stepped up yet to buy more shares in this compelling story, I encourage you to do so and I'm moving my rating to a full buy position for aggressive investors. Ben Reynolds, Sure Dividend Lockheed Martin produces aircraft like the F-35, F-22, F-16 and C-130; combat ships, naval electronics and helicopters; and missile defense, space systems and satellites. Lockheed Martin's competitive advantage comes from its deep technical expertise and its entrenched relationship with sovereign customers such as the U.S. Department of Defense. These competitive strengths have allowed the company to attract more business than it can fulfill at any one time; in fact, Lockheed Martin's sales backlog continues to remain healthy at approximately $144 billion. Lockheed Martin is also very recession resistant. During the global financial crisis of 2007 through 2009, the company's earnings per share declined from $7.86 to $7.23 -- a decrease of just 8.0%. We expect the company to fare similarly well during future economic downturns. Lockheed Martin's robust industrial backlog makes its future growth prospects compelling. We expect the company to grow its earnings by 10% per year moving forward. For context, the company's per share profits have increased at an even faster rate of 13% over the last half-decade. Lockheed Martin is a rare example of a Sure Dividend recommendation trading slightly above fair value. The company is trading at a price-to-earnings ratio of around 17.3 and our fair value estimate is an earnings multiple of 16. Still, the company's expected returns are about 10.9% per year, making it attractive relative to the broader large-cap universe. Eddy Elfenbein, Growth Stock Advisor HEICO is the kind of niche business I love. The firm makes replacement parts for the airline industry, explains Eddy Elfenbein, editor of Growth Stock Advisor. Sexy, right? Well, not exactly, but let's consider a few things. If a commercial aircraft needs some obscure new part, they can't run down to the local hardware store. Instead, the company needs to special order it. Moreover, there's a great deal of cost pressure on the airlines to keep the older planes serviceable. Aircraft parts also often need to meet strict regulatory guidelines. The part-maker really has to know what it's doing. That's where HEICO comes in, with its FAA-approved aircraft replacement parts. HEICO is lean and well run. Last year, the company did $1.9 billion in business. The company would have probably cracked $2 billion this year, if not for the economic lockdown. The aviation industry is broadly diversified, and HEICO is also able to get sales from both commercial and military customers. That means that if there's a drop off in one end of the business, that other side can pick up the slack. Wherever there's a demand to cut costs, HEICO has the potential to do well. By the way, HEICO supplies more than aircraft parts. They also supply parts for satellites, rockets, missiles, and even medical devices. Although the company is great, I still have some concerns about how quickly the airline industry will rebound. With so few planes flying, not many will need repairs. But I'm keeping a close eye on HEICO. Richard Moroney, Dow Theory Forecasts Founded in 1939, Northrop Grumman is not known for its high-octane growth. But per-share earnings rose 15% in 2019 and 39% in 2018, partly reflecting acquisitions. Per-share profits should rise at least 4% this year and 14% in 2021. The third-largest U.S. defense contractor, Northrop is benefiting from contract wins, healthy organic growth, and a massive order backlog that totaled $64.2 billion on March 30. Over the last 12 months, free cash flow surged 90% to $2.07 billion. Northrop earns above-average Momentum and Value scores, putting the Overall score at 66. The company hiked its quarterly per-share dividend 10% to $1.45 in May, marking the 17th consecutive annual increase. The dividend consumes just 25% of estimated current-year earnings, leaving room for increases. The stock is earns our long-term buy rating. Jon Markman, Pivotal Point The space race reignited when a SpaceX crew hooked up with the International Space Station nearly 250 miles from Earth. It's a windfall for space exploration ... and for many companies you may not be aware of. The new economics of satellites is breathing life into the communications businesses of legacy aerospace firms. In addition to their defense contracting businesses, Teledyne and Lockheed Martin have significant exposure to extraterrestrial communications. Northrop Grumman in 2017 spent $9.2 billion to acquire Orbital ATK, a maker of launch vehicles and satellite systems. And L3Harris Technologies builds components to make satellite data actionable for the military. Maxar Technologies may be a small fry compared to big aerospace firms, but the Colorado firm is on the cutting edge of space imagery and data analytics. The company operates a constellation of geospatial satellites that managers claim is the evolution of GPS. Their tech helps application developers understand where things are in the world and where they are moving to. Meanwhile, many companies are still working through the heavy lifting of traditional aerospace. They are still building infrastructure to get machinery and supplies to space. Boeing is building the Space Launch System (SLS), the most powerful rocket ever conceived. If all goes according to plan, SLS will carry astronauts to the moon and possibly Mars. Space News reports that the first SLS launch is expected in the second half of 2021. Components companies like Raytheon Technologies are helping build spacecraft for crewed missions, space suits and momentum and reaction wheels, which are cooling devices used to control the altitude of a space vessel without rockets. Heico Corp. and TransDigm Group make mission critical specialty electronics and specially engineereed parts. Often, these firms are the sole supplier of such items, resulting in extremely high profit margins. As the sector expands, sales momentum is also certain to grow. All of these businesses are possible because the aerospace industry is at an inflection point. Innovations are leading to new business models and new end markets. Savvy investors should look for weaknesses to get in on some of these positions. The future is here. Aerojet Rocketdyne Holdings operates in a similar capacity. Since 1945, the California company has been involved in the design and manufacture of aerospace and defense components. The company has helped power 1,600 rocket launches and is a major contractor to NASA, the U.S. government and leading aerospace companies like Boeing.

These Aviation & Space Plays Are Looking Up

From military jets to space travel, here are a bunch of stocks to consider.

Columnist Conversation

This Weekend on Real Money

Friday Morning Fibocall for 10/23/2020

Let's Talk About Why Cash Is King

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.