NEW YORK (TheStreet) -- Northrop Grumman (NOC) - Get Report is in the news for those more comfortable with following the fundamentals or the possible causes. We, however, prefer to follow the effects or the price action in the marketplace.
While many listed stocks suffered corrections this year, NOC was content to trade sideways to slightly higher. There are no specific or special buy signals from the indicators, but if you were looking to add to existing long positions, NOC tested and bounced off its rising 200-day moving average in August, September and October. These three tests of the moving average gave you a low-risk opportunity in that you could go long at the average and use a sell stop below the average to control the risk.
The chart of NOC, above, needs a little explaining for the untrained eye. Most charts you see are arithmetic, that is, the vertical scale will have the same distance between 1 and 2 as between 3 and 4. This chart is logarithmic, meaning the distance between 30 and 60--a doubling--is the same as from 60 to 120. Logarithmic or "log charts" are better suited for looking at a long period of time or when a security has had a very big move. In this chart of NOC, you can see that prices were in a sideways trend for 12 years between $30 and $75 before they broke out to the upside in 2013. Prices have more than doubled from the breakout point, but a Point and Figure chart, below, suggests even more gains are possible.
The price objective or target derived from the Point and Figure chart projects up to $253, but rounding down to $250 should be fine. Consider this projection an estimate without any timing consideration, so we would not run out and buy out-of-the-money calls.
Separately, TheStreet Ratings team rates NORTHROP GRUMMAN CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
We rate NORTHROP GRUMMAN CORP (NOC) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, notable return on equity, good cash flow from operations and growth in earnings per share. We feel its strengths outweigh the fact that the company shows low profit margins.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 43.47% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, NOC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Aerospace & Defense industry average. The net income increased by 3.9% when compared to the same quarter one year prior, going from $511.00 million to $531.00 million.
- 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. In comparison to other companies in the Aerospace & Defense industry and the overall market on the basis of return on equity, NORTHROP GRUMMAN CORP has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
- Net operating cash flow has slightly increased to $626.00 million or 9.44% when compared to the same quarter last year. Despite an increase in cash flow, NORTHROP GRUMMAN CORP's cash flow growth rate is still lower than the industry average growth rate of 35.51%.
- NORTHROP GRUMMAN CORP has improved earnings per share by 15.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, NORTHROP GRUMMAN CORP increased its bottom line by earning $9.74 versus $8.34 in the prior year. For the next year, the market is expecting a contraction of 0.2% in earnings ($9.72 versus $9.74).
- You can view the full analysis from the report here: NOC