Book Profits on Aerospace Stocks

TheStreet.com

NEW YORK (TheStreet) -- The Department of Defense sent out furlough notices on May 28. Another wave of spending cuts will affect military bases next week.

I live and work in Tampa, Fla., and starting on Monday, about 3,500 civilian employees at MacDill Air Force Base in Tampa will begin to take unpaid days off. Each employee will lose about 11 days of wages through the end of September. While that may not seem as a big deal on Wall Street, these furloughs will cost Main Street in Tampa about $8 million.

It appears to me that in addition to furloughs across the country at military bases, there will be spending cuts that could hit aerospace stocks. Eight of the 10 stocks I profile today set new multiyear or 2013 highs on Tuesday.

ValuEngine still shows that stocks are trading under a valuation warning with 74% of all stocks overvalued with 38.6% overvalued by 20% or more. The aerospace sector is 18.2% overvalued. My asset-allocation rating for the aerospace sector is underweight with 32.6% of the 95 stocks in this sector rated sell.

Today I profile 10 stocks in the aerospace sector that will report quarterly earnings between July 19 and August 8.

All 10 of these stocks are overvalued with five overvalued by more than 20%. Five of these stocks have recently been downgraded to sell from hold and the other five continue to have hold ratings. All have had big gains over the last 12 months of between 19.7% and 53.1%.

These stocks are projected to slide by 2.1% to 11.9% over the next 12 months. All stocks are above their 200-day simple moving averages, indicating the risk of a reversion to the mean.

Reading the Table

OV / UN Valued - The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating - A "1-Engine" rating is a Strong Sell, a "2-Engine" rating is a Sell, a "3-Engine" rating is a Hold, a "4-Engine" rating is a Buy and a "5-Engine" rating is a Strong Buy. Last 12-Month Return (%) - Stocks with a Red number declined by that percentage over the last twelve months. Stocks with a Black number increased by that percentage.

Forecast 1-Year Return - Stocks with a Red number are projected to decline by that percentage over the next twelve months. Stocks with a Black number in the Table are projected to move higher by that percentage over the next twelve months.

Value Level: is the price at which to enter a GTC Limit Order to buy on weakness. The letters mean; W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: is the price at which to enter a GTC Limit Order to sell on strength.

Boeing ($104.68) set another multiyear high at $105.75 on Tuesday, and has been downgraded to sell from hold. My semiannual value level is $96 with a monthly pivot at $103.24 and semiannual risky level at $109.49.

BE Aerospace ($66.30) set a new multiyear high at $66.77 on Tuesday, and has been downgraded to sell from hold. My quarterly value level is $56.95 with a weekly pivot at $63.26 and semiannual risky level at $66.97.

Rockwell Collins ($66.45) set its multiyear high at $67.58 on May 28 with the stock rebounding toward that milestone despite being downgraded to sell from hold. My weekly value level is $64.04 with a monthly weekly risky level at $69.08.

Curtiss-Wright ($38.35) set its 2013 high at $38.36 on Tuesday and was downgraded to sell from hold. My semiannual value level is $36.77 with a monthly pivot at $38.67 and annual risky level at $41.19.

FLIR Systems ($28.78) set its 2013 high at $28.96 on Tuesday and was downgraded to sell from hold. My annual value level is $27.90 with a monthly pivot at $29.78 and semiannual risky level at $32.13.

General Dynamics ($79.86) set a multiyear high at $80.54 on Tuesday, maintaining a hold rating. My semiannual value level is $77.43 with a weekly pivot at $80.57 and a semiannual risky level at $84.72.

L-3 Communication ($88.57) set a multiyear high at $88.76 on Tuesday, maintaining a hold rating. My annual value level is $85.25 with a semiannual pivot at $87.17 and annual risky level at $106.38.

Lockheed Martin ($109.57) set a multiyear high at $110.31 on Tuesday, maintaining a hold rating. My semiannual value level is $103.38 with an annual pivot at $108.38 and annual risky level at $112.40.

Northrop Grumman ($85.53) set a multiyear high at $86 on Tuesday, maintaining a hold rating. My semiannual value level is $80.02 with a semiannual risky level at $87.62.

Raytheon ($67.44) set its multiyear high at $68.62 on May 30 and maintains a hold rating. My annual value level is $64.74 with a weekly pivot at $68.84 and annual risky level at $69.36.

Notice how nine of 10 of these stocks are approaching semiannual or annual risky levels. We are in the second half of the year and thus these levels have assumed all possible bullish events for these stocks for the remainder of 2013.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

EXCLUSIVE OFFER: See inside Jim Cramer’s multi-million dollar charitable trust portfolio to see the stocks he thinks could be potentially HUGE winners. Click here to see his holdings for FREE.

View Comments (0)