One name I like, which I’ve mentioned in both Cabot Top Ten Trader and Cabot Market Letter of late, is Spirit AeroSystems (SPR), a leading supplier in the aerospace industry, which is booming as the new-jet delivery cycle roars ahead. Here’s what I wrote about the firm in Cabot Top Ten Trader two weeks ago:
“Aerospace stocks remain one of the groups that has barely noticed the market’s wobbles; with the new jet delivery cycle well underway, the big dogs in the industry (Boeing) and all the major suppliers, like Spirit AeroSystems, are sure to benefit during the next two or three years. What institutional investors like is that there’s little competition here—most firms dominate their area in the industry. And Spirit certainly fills that bill; it’s the largest aerostructure supplier (think fuselages, propulsion and wing systems, etc.) to both Boeing and Airbus; its products go into every Boeing commercial jet, including 70% of the content for the 737 and it’s the largest suppler to the new 787. What’s held the company back in recent years isn’t demand but cost overruns; management has been sub-par. But the top brass (including a new CFO) has finally gotten a hold on their expenses and earnings are expected to explode in the quarters ahead. In fact, the third-quarter report crushed estimates (77 cents per share vs. 60 expected), and the company ended September with a jaw-dropping backlog of $38 billion. Earnings are expected to reach $2.66 per share next year, but we think that could prove very conservative if the top brass finally pulls the right levers.”
The stock battled with long-time resistance around 26, but after pausing for nearly three months, it just gapped up to new highs after earnings at the end of October, and stretched into the low 30s following Boeing’s big weekend of bookings. The buying power has been excellent, though the stock is extended to the upside.
There are two ways to go about buying SPR. You could buy a half-sized position around here and look to add more shares on the way up. Or you could be patient, and look for a dip of a point or two during a market shakeout before starting a full-sized position. A drop below 27 would look abnormal at this point, but long-term, I think shares can ride the aerospace boom for many quarters to come.
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