Monday, August 22, 2011

T20YM: The Boeing Company (BA) Strong Buy

The Boeing Company (BA)
Industry: Aerospace and Defense
Current Dividend Yield: 2.9%

The Boeing Company is the world’s largest aerospace and defense company. It operates worldwide and is the largest exporter in the United States. Its three main divisions are Commercial Airline, Integrated Defense Systems, and Boeing Capital.

Business Segments:

Commercial Airplanes: 50%
From the iconic 747 to the all-new 787 Dreamliner, Boeing delivers a family of technologically advanced and efficient airplanes to customers around the world.[1] With a global aerospace refresh starting anew, Boeing can expect to see an increase in demand for its planes in the coming quarters. In fact, Boeing has recently received one of its largest orders to date from American Airlines. Boeing did split this order with is closest competitor, EADS NV (EADSY) but if we take management's word for it, they simply couldn’t produce enough planes to fill the order by themselves.

Integrated Defense Systems: 50%
Boeing is a recognized leader in providing and supporting large-scale systems that combine sophisticated communications networks with air-, land-, sea- and space-based platforms for military, government and commercial customers around the world.

Key IDS products are: fighter jets, rotocraft, large aircraft, missiles/bombs, satellites, communication systems, space systems and launch systems

Investors have recently been concerned with the U.S government’s contraction in defense spending. I acknowledge this is a legitimate concern, however it's not one that I am losing sleep over. The fact of the matter is that America is perpetually at war. This is not a political statement. It is what it is.

Let’s take a look at Boeing's fundamentals’:

With cyclical companies such as Boeing, it’s important to not get caught up with 7-year averages and ratios. Even with Boeing’s cyclicality, its 7-year ROE is a respectable 14.6%. Additionally, it is trading at a considerable discount to its historic P/E. Read the rest of the article here.

Sunday, August 14, 2011

Best in Breed Dividend Stocks: Portfolio Check Up

Over the last week I received numerous emails regarding my last column on Seeking Alpha. Readers inquired why I was so negative on the market. Other than the macro elements that I laid out, the market had set itself up for a psychological correction.

Generally speaking, I am a firm believer in the efficient market theory. I believe most equities trade at, or near, their true market value. There is little to no money to be made when equities are fairly valued. Alpha becomes harder and harder to come by.

When markets are in a sustained uptrend, as we witnessed throughout the duration of QE2, they begin to trade with a sense of invincibility. We forget to worry or factor in risk. Riskier assets simply become conduits to greater returns. With the Bernanke ‘put’ in place, there was no downside risk. The only way to generate alpha was to chase greater risk. When this occurs, the efficient market theory quickly devolves into the ‘castle in the air’ theory, or more aptly, the ‘greater fool’ theory.

All equities begin to trade at multiples that are unwarranted, limiting upside while exacerbating downside risk. Who was buying Open Table (OPEN), Salesforce (CRM) and Netflix (NFLX) at these multiples? I guess there is always a greater fool waiting to carry your bag, so why worry?

Eventually this over exuberance comes to end. In our recent scenario, Bernanke took off the training wheels and we had the sudden realization that the US economy was not ready to ride on its own. We careened off the edge at full speed. Selling begets selling, and the market became increasingly irrational. Risk begins to rear its ugly head and the weak retreat to the security of their bank accounts.

This is capitulation. This is purely psychological, and it’s exactly the time to purchase equities. This is when real money is made.

Read the rest of the article here

Monday, August 8, 2011

T20YM: Time to Pick Em'

It’s been over six months since I penned my Best in Breed Dividend Stock series for Seeking Alpha. For the majority of that time, the markets have been on an unsustainable trend upwards. I have refrained from writing individual analyses as I simply did not trust the multiples being awarded to equities. I couldn’t bring myself to recommend stocks at such lofty levels. Lucky for us, there was the end of July and first week of August …

Pardon me while I chuckle.

How did you not see this coming? Let’s break down just some of market headwinds we have seen over the last two months; the end of QE2, lingering effects of the Japanese earthquake and tsunami, a growing European sovereign debt crisis, and increasingly negative U.S. economic data points. Just how bad were those U.S data points? How about a Q1 GDP revision down to .4% and Q2 GDP coming in at whopping 1.3%? Let’s not forget the July ISM number plummeting to 50.9%, its lowest reading since August of 2009. Sprinkle in some truly dreadful employment numbers and you have a surefire recipe for disaster. Anyone who is blaming this on the debt ceiling debate is fooling themselves. There’s a reason companies are sitting on oodles of cash and not hiring. There’s a reason why companies have been conservative with their Q3 guidance. The world’s economy is slowing down. We need to accept this as fact and allocate capital accordingly.

So with all that doom and gloom how can I possibly recommend investing in equities? Look, things are bad, but the world is not ending. Even if we slip into another recession, the S&P doesn’t need to trade down to 900. Companies are still making money and equities are the only investment with any chance of generating alpha. This correction has brought stocks back to reality. I still don’t think stocks are cheap but at these levels I am willing to put some money to work.

Check out the stocks I selected here