10 Stocks for 2013 - #10 - Boeing

Dave is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

At Fastball Financial, we've compiled a portfolio of 10 stocks for 2013 that provide:

  1. Diversification across industries and market caps
  2. Growth in some of the hottest themes and industries
  3. Sufficient stability and dividends to offset potential market losses

Thus far, we've named these nine stocks to the portfolio:

  • Intuitive Surgical
  • Apple
  • F5 Networks
  • Starbucks
  • Chipotle
  • Lululemon
  • Kinder Morgan Energy
  • eBay
  • Bank of the Ozarks

For our 10th and final selection, we're going a bit more controversial by stepping into the aerospace and defense industry, taking a look at Boeing (NYSE: BA).  Boeing makes both commercial and military aircraft, as well as satellites and missile defense systems.  Why do I say it's controversial?  Because their new big product, the 787 jetliner, has been grounded because its fancy new lithium batteries are starting fires.

Boeing has received approximately 850 orders for the 787, and airline execs are showing no indications that they plan on canceling orders due to these battery problems.  The problem is that Boeing just started delivering them in 2012.  So just when they're ready to start getting the big return on their investment, problems with the batteries arise.   Now we have a rare binary event for this $57 billion market cap company.  If they cannot figure out the burning battery problem, Boeing could be forced to incur significant costs to redesign the 787.  If they do figure it out and it turns out to be not too big of a modification, then the 787 demand should send their stock soaring higher.

<img src="http://media.ycharts.com/charts/1df64efc27d802c69e1fd0e6100a592c.png" />

The chart above shows clearly the jump in revenue in 2012.  This further illustrates the importance of the 787 on Boeing's future.  Investing in Boeing can be risky with their current 787 issues, but the airline companies have given the 787 glowing reviews.  At this point, much of these worries are priced into the stock, and I think there is more upside than downside in the stock.  If Boeing can work-out its 787 battery problems in a timely manner, this stock will provide a great return from its deliveries of the 787.

Alternate: Lockheed Martin

If Boeing's risk has you scared, perhaps a defense company with a bigger dividend works for you: Lockheed Martin (NYSE: LMT).  This company has been restrained for quite some time on the fear of government defense spending cuts.  This general lack of stock price appreciation (see below) has caused the dividend yield to rise substantially to its current rate of 4.8%!

<img src="http://media.ycharts.com/charts/8e919d8ff077c6ba9d4427c21bad07f7.png" />

The fears over defense spending cuts are very real.  However, much of these fears are already priced in the stock.  Lockheed Martin's management is well aware of the potential cuts and already crafted a plan to cut costs if sequestration were to take place due to lack of congressional action on the budget. 

When you have a company that's as solid as Lockheed Martin and has shown revenue growth over the past few years, you should give them the benefit of the doubt that they would be able to manage their business through any temporary declines in revenue.  In the end, you're getting a strong company with a 10.5 P/E and a 4.8% dividend yield. 

Other alternatives: Northrop Grumman, General Dynamics & Raytheon

If you're interested in the aerospace and defense industry, but want additional alternatives to Boeing and Lockheed Martin, then look at these other three alternatives:  Northrop Grumman (NYSE: NOC), General Dynamics (NYSE: GD), and Raytheon (NYSE: RTN).


<img src="http://media.ycharts.com/charts/321b6600e5b1e008818b8b9fba899874.png" />

Northrop Grumman makes a lot of different products for the defense industry, including but not limited to:

  • Manned and unmanned aircraft
  • Spacecraft
  • High-energy laser systems
  • Electronic defense systems

Unfortunately, as you can see below, Northrop Grumman has struggled to grow recently, and its stock price has reflected such.  Also, while the 3.2% dividend yield is nice, they haven't been able to grow the payout much.  It's P/E is only 8.4, so it might be a good value play, but I'd rather go with Boeing, which has a growth driver in the 787, or Lockheed Martin, which has a larger and growing dividend yield.

<img src="http://media.ycharts.com/charts/581c979976d9cb1305f1c5982017654e.png" />

General Dynamics focuses on aviation, combat vehicles, weapons systems & munitions.  Unfortunately, I have the same feeling about General Dynamics as I have about Northrop Grumman: no top-line growth, little-to-no stock price appreciation over the past couple years and a nice dividend yield, but one whose payout hasn't grown much over the recent years.  It's too risky for me in an environment of potential spending cuts.  Again, I'll take Boeing or Lockheed Martin over General Dynamics. 

<img src="http://media.ycharts.com/charts/dc5b2f0a06e49567c5049212b2b8279b.png" />

Raytheon makes missile defense systems, radar solutions, and naval combat systems.  It's stock offers a nice 3.8% dividend, but its revenue has tailed off in the past year.  However, prior to this past year, Raytheon had solid revenue growth and a rising dividend payout.  With solid operating cash flows, it has plenty of earnings to pay for its dividend and doesn't seem like it would have much difficultly adapting to government spending cuts.  I like it as an alternate to Boeing and Lockheed Martin.  I like those two stocks better, but Raytheon looks like another solid play at a discounted 9.5 P/E.

<img src="http://media.ycharts.com/charts/de3548c65a15f62a79710e5f971a2676.png" />

Bottom Line 

Investing in aerospace and defense companies carries plenty of risk right now.  Whether it's a broad risk of government defense spending cuts, or specific company risk such as the ailing 787 Dreamliner, you have to be able to stomach some ups and downs to invest in these companies.  But, if these risks pass in time like I think they will, then this is a great time to buy these companies at cheap valuations, and they all give you great dividends to wait.  My favorites are Boeing and Lockheed Martin, with Raytheon getting an honorable mention.

Thanks for reading!  I hope you've enjoyed the full list of the 10 Stock Portfolio for 2013 at Fool.com and Fastball Financial.  I'll keep you posted on the progress of these companies throughout the year.

Zaegs has a position in Lockheed Martin. The Motley Fool owns shares of General Dynamics, Lockheed Martin, Northrop Grumman, and Raytheon Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus