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NEW YORK (TheStreet) - With Berkshire Hathaway Inc. (BRK.A) - Get BRK.A Report (BRK.B) - Get Berkshire Hathaway Inc. Class B (BARK.B) Reportagreeing to acquirePrecision Castparts Corp. (PCP) this week, we decided to check TheStreet Quant Ratings for stocks in the aerospace and defense sub-sector worth buying.

Warren Buffett's conglomerate said it will pay around $30 billion in cash for Precision Castparts, making this Berkshire's most expensive acquisition ever.

Shares of Precision Castparts shot up nearly 20% yesterday morning, to $231. The company manufactures and sells metal components and products to the aerospace, power, and general industrial and other markets worldwide.

TheStreet Quant Ratings rated Precision Castparts a "B- buy," before the deal was announced.

So, what are the best aerospace and defense companies investors should be buying? Here are the top three, according to TheStreet Ratings, TheStreet's proprietary ratings tool.

TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014, beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Check out which stocks made the list. And when you're done, be sure to read about which pharmaceutical stocks you should buy now. Year-to-date returns are based on August 10, 2015 closing prices. The highest-rated stock appears last.

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3. General Dynamics Corporation

(GD) - Get General Dynamics Corporation (GD) Report


Rating: Buy, A
Market Cap: $50 billion
Year-to-date return: 10.4%

General Dynamics Corporation operates as aerospace and defense company worldwide. It operates through four business groups: Aerospace; Combat Systems; Information Systems and Technology; and Marine Systems.

"We rate GENERAL DYNAMICS CORP (GD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • GD's revenue growth has slightly outpaced the industry average of 4.4%. Since the same quarter one year prior, revenues slightly increased by 5.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • 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 30.24% 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, GD should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • GENERAL DYNAMICS CORP has improved earnings per share by 20.7% 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. We feel that this trend should continue. During the past fiscal year, GENERAL DYNAMICS CORP increased its bottom line by earning $7.83 versus $7.03 in the prior year. This year, the market expects an improvement in earnings ($8.82 versus $7.83).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Aerospace & Defense industry. The net income increased by 39.0% when compared to the same quarter one year prior, rising from $541.00 million to $752.00 million.
  • The current debt-to-equity ratio, 0.30, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that GD's debt-to-equity ratio is low, the quick ratio, which is currently 0.60, displays a potential problem in covering short-term cash needs.
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TheStreet Recommends

LMT

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2. Lockheed Martin Corporation

(LMT) - Get Lockheed Martin Corporation (LMT) Report


Rating: Buy, A
Market Cap: $65.5 billion
Year-to-date return: 9.5%

Lockheed Martin Corporation, a security and aerospace company, engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services.

"We rate LOCKHEED MARTIN CORP (LMT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income, revenue growth and notable return on equity. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

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 28.34% 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, LMT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • LOCKHEED MARTIN CORP has improved earnings per share by 6.5% 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. We feel that this trend should continue. During the past fiscal year, LOCKHEED MARTIN CORP increased its bottom line by earning $11.21 versus $9.04 in the prior year. This year, the market expects an improvement in earnings ($11.40 versus $11.21).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Aerospace & Defense industry average. The net income increased by 4.5% when compared to the same quarter one year prior, going from $889.00 million to $929.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 4.4%. Since the same quarter one year prior, revenues slightly increased by 3.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • 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. Compared to other companies in the Aerospace & Defense industry and the overall market, LOCKHEED MARTIN CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
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1. Honeywell International Inc.

(HON) - Get Honeywell International Inc. (HON) Report


Rating: Buy, A+
Market Cap: $84 billion
Year-to-date return: 7.4%

Honeywell International Inc. operates as a diversified technology and manufacturing company worldwide.

"We rate HONEYWELL INTERNATIONAL INC (HON) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures and notable return on equity. 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:

  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • HONEYWELL INTERNATIONAL INC has improved earnings per share by 9.4% 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. We feel that this trend should continue. During the past fiscal year, HONEYWELL INTERNATIONAL INC increased its bottom line by earning $5.33 versus $4.92 in the prior year. This year, the market expects an improvement in earnings ($6.10 versus $5.33).
  • 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 8.6% when compared to the same quarter one year prior, going from $1,099.00 million to $1,194.00 million.
  • The current debt-to-equity ratio, 0.53, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.91 is somewhat weak and could be cause for future problems.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to other companies in the Aerospace & Defense industry and the overall market on the basis of return on equity, HONEYWELL INTERNATIONAL INC has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.