If Thursday is any indication, the market is nervous about first-quarter earnings, and after a big run off the lows posted in February, it looks as though people are taking profits. Treasury bond yields are puny, and corporate investment grade bonds aren’t much better, so where should investors look? One good area is aerospace and defense.
In a new and very comprehensive Deutsche Bank report notes that while commercial aerospace is underperforming due to cycle concerns, defense stocks continue to gain Wall Street and investor attention, based on their relative isolation from the potential for global economic slowdown, the confirmed increases in defense spending and their strong cash flow and dividend yields.
We screened the Deutsche Bank research universe for defense leaning companies that pay solid dividends, and found four that make good sense for investors now. All are rated Buy at Deutsche Bank.
Boeing
This top aerospace industrial has dropped a whopping 14% since the beginning of the year. Boeing Co. (NYSE: BA), together with its subsidiaries, designs, develops, manufactures, sells, services and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems and services worldwide. The company operates in five segments: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support and Boeing Capital.
Top Wall Street analysts have increased confidence in continuing good demand, and they note that the company has made announcements in the past that support the analyst’s thesis that productivity and margins will continue to improve. 787 execution is good as the company works through the backlog, and cash flow looks to be strong with 787 deliveries and C-17 orders. Some Wall Street analysts also point to low oil prices as a bullish indicator for the top carriers who are Boeing’s big customers.
The company is the worst performing Dow Jones Industrial component so far this year, and the current price point offers investors an outstanding entry point, despite some recent upside.
Boeing investors are paid a very solid 3.43% dividend. The Deutsche Bank price target for the stock is $160, and the Thomson/First Call consensus price target is $137.95. The shares were trading down fractionally on Thursday at $126.80.
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