7 Aerospace Trades Ahead of Earnings, Sequestration

NEW YORK (TheStreet) -- Investors should consider these seven stocks in the aerospace sector as "buy and trade" candidates in 2013. Each of them is rated either a strong buy or a buy.

Like my post published Tuesday, 7 Conglomerates to Trade in Earnings Season, if you are already long these stocks, you should consider shifting from a "buy and hold" investment strategy to a "buy and trade" strategy.

With aerospace stocks you have the volatility in reacting to Q4 earnings and you have the risk of sequestration spending cuts that will be negotiated later in the quarter.

In a "buy and trade" strategy you take advantage of ups and downs in the price of a stock using GTC Limit Orders to buy weakness to a value level, and to sell strength to a risky level. With aerospace stocks, look for volatility vs. quarterly earnings and sequestration decisions in Washington.

The aerospace sector is 3.9% overvalued and there are 11 of 16 sectors that are more overvalued. The seven companies I am profiling today report their earnings between Jan. 23 and Feb. 8, and I will be on the alert for upgrades and downgrades between now and then.

Here, I show the current EPS estimates from Wall Street and will compare these numbers to more current estimates during the weeks these companies report.

Three of the seven stocks are rated a strong buy according to www.ValuEngine.com and the other four are buy rated. Only two are undervalued but by just 4.4% and 0.7%. The other five are overvalued by 1.9% to 8.8%. One stock is down 5.8% over the last twelve months, and one is up just 2.6%. The other five have gained between 8.0% and 24.5% over the last twelve months. Gains over the next twelve months are projected to be between 7.0% and 14.5%. The twelve month trailing P/E ratios are favorable to reasonable between 9.4 and 15.8. All are above their 200-day simple moving averages so reversion to the mean is an issue in 2013.

Reading the Table

OV/UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-Engine" rating is a strong sell, a "2-Engine" rating is a sell, a "3-Engine" rating is a hold, a "4-Engine" rating is a buy and a "5-Engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a Black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number are projected to move higher by that percentage over the next 12 months.

Value Level: The price at which to enter a GTC Limit Order to buy on weakness. The letters mean; W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual.

Pivot: A level between a value level and risky level that should be a magnet during the timeframe noted.

Risky Level: The price at which to enter a GTC Limit Order to sell on strength.

Boeing Co ( BA) ($74.13) is expected to earn $1.19 per share on Jan. 30. Boeing set a 52-week high at $78.02 on Jan 4 then declined to a low of $73.11 on Tuesday as electrical problems have been reported on three 787 Dreamliner aircrafts recently.

The daily chart is negative and the weekly chart shifts to negative on a close Friday below the five-week modified moving average at $74.57. My monthly value level is $68.59 with a weekly pivot at $76.46 and quarterly risky level at $79.34.

FLIR Systems ( FLIR) ($23.34) is expected to earn 49 cents per share on Feb. 8. FLIR is well below its multi-year high at $37.29 set in May 2011. The daily is overbought and weekly chart is positive with the stock above the five-week MMA at $21.70. My semiannual value level is $22.00 with a weekly pivot at $23.10 with an annual risky level at $27.90.

General Dynamics ( GD) ($70.41) is expected to earn $1.94 per share on Jan. 23. GD set a 52-week high at $74.54 on April 2, 2012. The daily and weekly charts are both positive with the stock above the five-week MMA at $68.52. My quarterly value level is $66.46 with a weekly pivot at $70.91 and semiannual risky level at $75.41.

L-3 Communications ( LLL) ($76.75) is expected to earn $2.12 per share on Feb 5. LLL set a 52-week high at $78.11 on Jan. 2. The daily chart shifts to negative on a close Wednesday below the 21-day SMA at $76.76. The weekly chart shifts to negative given a close this Friday below the five-week MMA at $76.19. My monthly value level is $72.89 with a semiannual pivot at $77.12 and annual risky level at $85.25.

Lockheed Martin ( LMT) ($92.96) is expected to earn $1.79 per share on Jan 24. LMT set a multi-year high at $95.92 on Nov 6. The daily chart is overbought and the weekly chart is positive with the stock above the five-week MMA at $92.24. My monthly value level is $90.62 with a weekly pivot at $93.74 and quarterly risky level at $101.16.

Northrop Grumman ( NOC) ($67.34) is expected to earn $1.74 per share on Feb 6. NOC set a multi-year high at $71.25 on Oct 18.

The daily chart stays negative with a close Wednesday below the 21-day SMA at $67.97. The weekly chart shifts to neutral on a close this week below the five-week MMA at $67.39. My quarterly value level is $61.70 with a monthly pivot at $68.41 and annual risky level at $71.60.

Raytheon ( RTN) ($57.74) is expected to earn $1.30 per share on Jan. 24. RTN set a 52-week high at $59.34 on Dec 21.

The daily chart shifts to negative on a close Wednesday below the 21-day SMA at $58.16. The weekly chart shifts to neutral on a close on Friday below the five-week MMA at $57.51. My semiannual value level is $51.32 with a quarterly pivot at $58.46 and annual risky level at $64.74.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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