Commercial Aerospace Stocks Outpace Dow Rebound
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Posted
by Joe Anselmo at
11/23/2009 9:03 AM CST
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A lot of investors are kicking themselves for not having more faith in the ability of Ford Motor Co. CEO (and Boeing Co. alum) Alan Mulally to revive the auto giant. A year ago, a share of Ford stock could be had for as little as $1.01. Last week, it was approaching $9 a share. Buyers who have bet on a rebound in commercial aerospace stocks have also fared well, even though the industry’s tough times are certainly not over. Since the stock market bottomed out in early March, the S&P 500 index is up 64%, the Dow Jones Industrial Average 59% and Europe’s FTSE 100 index 51%. But many aerospace stocks have outpaced those gains—in some cases by big margins. “Commercial aerospace stocks have had a great year,” says Macquarie Securities analyst Robert Stallard.
Take Textron Inc. The company’s share price has soared 412% since March as its troubled finance unit showed signs of stabilizing and a sales free-fall at its Cessna Aircraft unit began to level out. Other high-fliers include aircraft lessor Aircap Holdings NV (up 380%), B/E Aerospace Inc. (205%), Precision Castparts Corp. (117%), Embraer (113%), Spirit AeroSystems Holdings (110%), Goodrich Corp. (104%), Rockwell Collins Inc. (95%) and Rolls-Royce plc (87%). Bombardier Inc. shares have risen 165%, though much of that is due to strong sales in the company’s rail business.
Stallard, who upgraded his outlook on the commercial aerospace sector in May, says signs of recovery in airline and freight traffic have driven the stock rebound. “If the lead indicators are improving, equity investors are ready to start buying on that signal,” he says.
Conversely, those forward-looking investors have become less bullish on defense, where share prices are driven by government funding. U.S. spending on military and space is more likely to go down than up in the coming years as the Obama administration and Congress grapple with gargantuan budget deficits.
General Dynamics Corp.’s shares have risen 89% since March and Northrop Grumman Corp.’s 65%, but many other defense and space companies have lagged the S&P 500’s 64% rebound. They include Orbital Sciences Corp. (up just 4%), Lockheed Martin Corp. (28%), Cobham plc (29%), Alliant Techsystems Inc. (37%), Elbit Systems Ltd. (46%) and Raytheon Co. (52%). It will be interesting to see how far these companies are willing to stray from their core businesses as they try to keep growing in an era of leaner budgets.
