NEW YORK (TheStreet) -- With Boeing Co. (BA) and Airbus winning north of 200 orders at the Paris Air Show, we decided to check Quant Ratings for the best aerospace and defense stocks to buy, looking at only the most volatile ones. Unlike with flying, in the markets, higher risk can mean higher reward.
Aerospace and defense companies are usually safe investments. The industry is consistently steady, due to ongoing government contracts. And with instability in the world, it wouldn't be a surprise to see defense spending increase, and benefiting the industry even more.
Also, the aerospace industry is the leading industry in the U.S. for export sales. In 2012, the U.S. aerospace industry was responsible for nearly 65% of all aerospace production in the world, and generated north of $70 billion in exports.
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 aerospace & defense companies made the list. And when you're done, be sure to read about which highly volatile tech stocks to buy now. Year-to-date returns are based on June 15, 2015, closing prices. The highest-rated stock appears last.GD data by YCharts
3. General Dynamics Corporation (GD)
Rating: Buy, A
Market Cap: $46.7 billion
Year-to-date return: 3.2%
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, increase in net income and reasonable valuation levels. 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:
- GD's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 7.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. 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.
- GENERAL DYNAMICS CORP has improved earnings per share by 25.1% 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 ($8.58 versus $7.83).
- 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 20.3% when compared to the same quarter one year prior, going from $595.00 million to $716.00 million.
- You can view the full analysis from the report here: GD Ratings Report