Defense Stocks Survive Sequester Cuts

Editor's note: Our Pre-Memorial Day special examines military-related stocks and how to buy, sell or trade them. This feature includes a video by Gregg Greenberg, Defense-Stock Domination; and articles by Marc Courtenay One Priced to Buy; Robert Weinstein Bigger Guns, Bigger Profits; Richard Saintvilus Boeing's Offense Is Defense; Richard Suttmeier Sequester Survivors; and Richard Cox Bullish Earnings Support Defense.

NEW YORK ( TheStreet) -- Sequestration spending cuts were expected to adversely effect the performances of companies that provide products and services to the U.S. military. As we prepare to honor those who served our country on Memorial Day, I profile nine stocks that have performed extremely well so far this year. I can only assume that the risk of defense spending cuts has been priced into these aerospace sector stocks.

The stock market continues to trade under a ValuEngine Valuation Warning, with 72.7% of all stocks overvalued. My sector focus today is aerospace, which is 17.6% overvalued. With 35.4% of all stocks in this sector rated sell or strong sell, I give the sector an underweight rating. View the setting of new multi-year highs this week as an opportunity to book profits.

Five of the nine defense related stocks profiled today are overvalued by more than 20%, and only one has a buy rating according to ValuEngine, and one has a sell rating. All nine stocks have given investors a gain of more than 12% over the last 12 months, but only one is expected to have 10% gain over the next 12 months. All are above their 200-day simple moving averages (SMA) reflecting the risk of a reversion to the mean.

Reading the Table

OV/UN Valued: 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 in the table are projected to move higher by that percentage over the next 12 months.

Value Level: 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 time frame noted.

Risky Level: Price at which to enter a GTC limit order to sell on strength.

Boeing ( BA) ($97.93) produces military aircraft and missiles and the stock traded to a new multi-year high at $99.48 on Wednesday. The weekly chart profile is positive but extremely overbought with the five-week modified moving average (MMA) at $92.53. The high was above this week's risky level at $99.08, where investors should book some profits on this hold rated Dow component. My annual value level is $93.21.

Rockwell Collins ( COL) ($65.92) provides aviation electronics and the stock traded to a new multi-year high at $67.11 on Wednesday. The weekly chart profile is positive but overbought with the five-week MMA at $64.17. My semiannual value level for this hold rated aerospace stock is $56.96 with a monthly risky level at $69.02.

Curtis-Wright ( CW) ($35.84) provides components to the U.S. Navy and trades below its 2013 high at $37.18 set on Feb. 19. The weekly chart is positive with the five-week MMA at $34.67. My quarterly value level for this sell rated aerospace stock is $31.42 with a weekly pivot at $36.36 and annual risky level at $41.19.

General Dynamics ( GD) ($77.42) set a multi-year high at $78.69 on May 21. The weekly chart is positive but overbought with the five-week MMA at $74.06. My semiannual value level is $75.41 for this hold rated aerospace stock with an annual risky level at $86.80.

L 3 Communications ( LLL) ($85.81) set a new multi-year high at $87.96 on Wednesday. The weekly chart profile is positive but overbought with the five-week MMA at $83.28. My annual value level is $85.25 for this hold rated aerospace stock with my annual risky level at $106.38.

Lockheed Martin ( LMT) ($106.49) set a new multi-year high at $107.93 on Wednesday. The weekly chart is positive but overbought with the five-week MMA at $100.85. My monthly value level is $96.02 on the hold-rated aerospace stock with an annual risky level at $108.38.

Northrop Grumman ( NOC) ($80.86) set a multi-year high at $83.28 on May 17. The weekly chart is positive but overbought with the five-week MMA at $76.09. My semiannual value level is $76.63 on this hold rated aerospace stock with a weekly risky level at $82.66.

After I graduated from Georgia Tech in 1966, I worked at Grumman when the company was the largest employer on Long Island. As a "Grummanite" I was proud to have helped put man on the moon in 1969, and was thrilled when Grumman won the contract to design and build the F-14 Tom Cat.

Raytheon ( RTN) ($66.24) set a new multi-year high at $67.44 on Wednesday. The weekly chart is positive but overbought with the five-week MMA at $62.36. My annual value level is $64.74 with an annual risky level at $69.36.

United Technologies ( UTX) ($96.25) set a new multi-year high at $98.18 on Wednesday. The weekly chart is positive but overbought with the five-week MMA at $94.42. My semiannual value level is $94.43 with no risky levels. United Technologies is in the multi-sector conglomerate sector, but it must be included today for its Pratt & Whitney jet engines and for its Sikorsky Helicopters which include the Black Hawk.

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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