NEW YORK (TheStreet ) - With Lockheed Martin Corporation (LMT ) recently announcing that it will buy Sikorsky from United Technologies Corporation (UTX ) for around $9 billion, we decided to see if there are any stocks in the aerospace and defense sector worth investing in. The companies we chose also pay high dividends.
The U.S. alone exported more than 60% of all worldwide aerospace and defense production in 2012, and generated north of $70 billion in exports in the sector that year. The U.S. aerospace industry generates more export sales than any other manufacturing industry in the U.S.
And with the near constant instability in the world, you can be sure there will always be aerospace and defense companies thriving.
So, what are the best aerospace and defense stocks investors should be buying? Here are the top three, according to TheStreet Ratings ,TheStreet 's proprietary ratings tool.
TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Check out which companies made the list. And when you're done, be sure to read about which exchanges to buy now. Year-to-date returns are based on July 17, 2015, closing prices. The highest-rated stock appears last.
3. Lockheed Martin Corporation (LMT )
Rating: Buy, A-
Market Cap: $63.8 billion
Year-to-date return: 4.5%
Lockheed Martin Corporation, a security and aerospace company, engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services.
"We rate LOCKHEED MARTIN CORP (LMT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we
rate. The company's strengths can be seen in multiple areas, such as its notable return on equity and solid stock price performance. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Aerospace & Defense industry and the overall market, LOCKHEED MARTIN CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- LOCKHEED MARTIN CORP' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LOCKHEED MARTIN CORP increased its bottom line by earning $11.21 versus $9.04 in the prior year. This year, the market expects an improvement in earnings ($11.25 versus $11.21).
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- LMT, with its decline in revenue, slightly underperformed the industry average of 3.3%. Since the same quarter one year prior, revenues slightly dropped by 5.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The change in net income from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Aerospace & Defense industry average. The net income has decreased by 5.9% when compared to the same quarter one year ago, dropping from $933.00 million to $878.00 million.
- You can view the full analysis from the report here: LMT Ratings Report