This Stock's a Good Long-Term Play

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If you can handle a bit of uncertainty stemming from both segments of this company's business and are investing for the long term, Rockwell Collins (NYSE: COL), a 2001 spin-off of Rockwell International, might be the stock for you. Rockwell builds communication aviation electronics for the commercial and defense markets. While both of those groups are experiencing heightened uncertainty, the company has clarity on its future and some lucrative clients to boot.

Speaking at a Cowen & Company aerospace and defense conference, Rockwell Collins' executives relayed their optimism about the future and their patience surrounding today. The company's business mix is split evenly right now between government contracts and commercial mandates. Nonetheless, the U.S. fiscal situation has been persistently uncertain. While the extent of defense cuts remains unclear, the Pentagon revealed on Wednesday that it would reduce its U.S. aircraft presence in the Persian Gulf to a single carrier.

"Year of Transition"

Uncertainty also looms from the private sector. Boeing (NYSE: BA) is in the midst of a major setback with its 787 Dreamliner fleet that was grounded because of a faulty battery. Boeing is continuing to produce the 787 jet even amid the slowdown and Rockwell Collins is continuing to build avionics systems for those aircraft. Most recently, Boeing said to expect delays for near term 787-deliveries, according to The Wall Street Journal. Rockwell Collins collects revenues for its systems at delivery.

Rockwell and Honeywell are building systems for Boeing's 737 Max jet, which will begin production in 2015. Share of Boeing are 7% below their 52-week high.

Rockwell Collins also has "six unannounced platforms" with original equipment manufacturers that have not yet been revealed despite the fact that the contracts are secure, according to comments from executives at the Cowen conference. Details surrounding those platforms should begin to surface in 2014 or 2015.

In any event, Rockwell has labeled 2013 as a year of transition as some of the unknowns it is currently facing play out. On the commercial side, there are only few new aircraft entries that are expected to come to market but at least there is growth. The unfortunate thing for 2013 is that any growth that the company experiences from its commercial business will be offset by weakness from defense, which will result in a projected 1-3% revenue decline this year.

Looking Ahead

A turning point for Rockwell Collins appears to be ahead in 2015. In addition to Boeing 737 Max production, Rockwell Collins is looking forward to "expanded commercial growth," as the company executives noted at the conference. New planes from Boeing and Airbus are expected to enter the market at this time. On the defense side, Rockwell Collins expects more predictability from the government by this time. As a result, the company is forecasting a 5% cumulative growth rate for revenues in 2015. The company is set on attaining its financial goals because it does not want to become a takeover target.

Rockwell Collins pays a quarterly dividend of $0.30 per share. The stock has a trailing price-to-earnings ratio of 14, compared with less expensive 12 for competitor Garmin (NASDAQ: GRMN).

Unlike Rockwell, Garmin is not tied solely to the aerospace industry. Last month, Garmin introduced a cockpit -- dubbed the K2 platform -- designed for automobiles, which turns a vehicle's traditional dashboard into an electronic cockpit with features that were inspired by the company's avionics and marine technology innovations. Shares of Garmin have pulled back about 10% year to date.

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The aerospace and defense sector is certainly facing uncertain times on several levels. For its part, Rockwell Collins is adapting to the uncertainty with as much clarity as possible and has offered investors a reasonable timeframe for growth. The company has met the unknowns with conservative financial projections, which could work in the stock's favor. The outlook for Rockwell Collins seems appropriate for a long-term strategy, such as a pension fund or an individual willing to wait a couple of years for the growth.

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