Ask the Rational Investor: Covid Weighs on Aerospace
It seems like every month I end up writing the stock market is at or near an all-time high. How much longer can it go on!
If you have followed one of the digital currencies, such as Bitcoin or other high-flying stocks you might even be thinking about buying them today even after they have risen astronomically!
But as the title of the column implies it is important to act unemotional in up and down markets. Which by the way can be equally as challenging. With markets at all-time highs, investors should be carefully considering their risk tolerance and possibly pruning investments have that become too large for their portfolio.
One of the benefits of investing in individual stocks is your ability to mitigate some of the risks of the general stock market. At any given time there are stocks that are overvalued and undervalued.
In the last month’s article, we highlighted energy stocks that offer an attractive tailwind of industry consolidation and more rational capital investment. This critical change away from exploration growth towards dividends and strong balance sheets is being underestimated.
Similarly, Ratheon Technologies look interesting in today’s stock market. They operate four segments: Pratt and Whitney, Collins Aerospace, Ratheon Intelligence and Space, Ratheon Missles, and Defense. Pratt and Whitney’s revamped Geared Turbo Fan product has investors excited after declining sales for many years.
Aerospace has been a darling industry due to rising levels of discretionary income globally and globalization. After Boeing’s Max jet issue and Coronovairus, many investors wonder how quickly travel and particularly business travel will rebound. This has created investment opportunities in many sectors and sub-sectors in aerospace.
Ratheon Technologies in April of 2020 merged with United Technologies. At the announcement of the merger United Technologies spun-off Otis elevator and Carrier the air-conditioner business as separate businesses. A lot of moving pieces, to say the least!
The merger and spin-off complexity combined with Covid and travel uncertainty has left investors an attractive investment opportunity. The company currently pays a dividend of over 2.50% which will likely grow over the next several years. Goldman Sachs estimates that Ratheon’s free cash flow per share will grow over 300% from 2020 to 2025 and expects the dividend to rise over 60%.
Whenever changing your investment portfolio it is important to consult your portfolio manager, as a change may not be prudent for your circumstances. In a stock market with most stocks priced for perfection, Ratheon looks relatively attractive.
Sources: Company Reports, Goldman Sachs
Beese Fulmer Private Wealth Management was founded in 1980 and is one of Stark County’s oldest and largest investment management firms. The company serves high-net-worth individuals, families, and non-profits, and has been ranked as one of the largest money managers in Northeast Ohio.
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