Trade of the Day: Two Choices In Aerospace & Defense - 2/13/14
Today's Trade of the Day is a double feature! Aerospace & Defense has been one of the strongest sub-industries in the market for over a year now. While the mid-January correction in major indices really soured some technical pictures in certain spaces, Aerospace & Defense held up extremely well, maintaining its strong intermediate- and long-term up-trend. The constituents are strong buys this week, as market leaders at a short-term discount are hard to come by.
Basically, there are two ways to play. The first is to pick out an Aerospace & Defense constituent that is similar to the sub-industry, but has a higher beta. Exelis Inc (XLS) seems like the perfect choice for this route. The stock has moved mostly in line with the greater Aerospace & Defense sub-industry (see similarities between XLS and ITA), though has generally outperformed. There is some great short-term support around $18.70, and the stock has clear upside to recent highs of $20.80. XLS looks to have righted the ship following the January pull-back and is beginning to enter the overbought stochastic, meaning buyers are stepping in in a meaningful way.
The other way to play is to buy the sub-industry itself using the iShares U.S. Aerospace & Defense ETF (ITA). ITA's top ten holdings are 9.22% UTX, 8.7% BA, 6.83% LMT, 6.16% PCP, 6.14% GD, 5.6% RTN, 5.14% NOC, 3.47% TXT, 3.42% COL, and 3.4% LLL. This ETF gives a nice mix of holdings that represents the sub-industry well and has performed admirably as a whole. The ITA has a lower beta than XLS, which means the upside is not as great. On the positive side, it also means a smoother ride for those looking to capitalize on the Aerospace & Defense set-up but want to avoid individual stock-specific risks like earnings or analyst ratings. ITA's set-up is nearly identical to XLS's, there is just less risk and lower potential reward.
For XLS: Upside from current prices to $20.80 is +5.58%, downside risk to a stop of $18.63 is -5.43%.
For ITA: Upside from current prices to $110.49 is +3.45%, downside risk to a stop of $103.47 is -3.11%
Both have similar reward to risk ratios, and the technical set-ups of the two are nearly identical. So, depending on whether you want to play bigger or smaller, take your pick! Either choice is a great play this afternoon.
Buy XLS at the current price (~$19.70), or ITA at the current price (~$106.80).
Sell at a close below $18.63 for XLS, $103.47 for ITA (Breakdown) / An intraday price of $20.80 for XLS, $105.63 for ITA or above (Profit-Taking)
Exelis Inc. (Exelis) is engaged in Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) related products and systems and information and technical services, which the Company supplies to military, government and commercial customers in the United States and globally. The Company's customers include the United States Department of Defense (DoD), including the United States Army, Navy, Marines and Air Force, and its prime contractors, the United States Government intelligence agencies, National Aeronautics and Space Administration (NASA), Federal Aviation Administration (FAA), allied foreign governments and domestic and foreign commercial customers. As a prime contractor, subcontractor, or preferred supplier, the Company participates in many high priority defense and non-defense programs in the United States. In February 2014, Exelis, Inc purchased FareSight, ARC's Web-based tool for corporate air travel optimization.
iShares U.S. Aerospace & Defense ETF, formerly iShares Dow Jones U.S. Aerospace & Defense Index Fund (the Fund), is an exchange-traded fund. The Fund seeks investment results that correspond generally to the price and yield performance of the Dow Jones U.S. Select Aerospace & Defense Index (the Index). The Index measures the performance of the aerospace and defense sector of the United States equity market. Aerospace companies include manufacturers, assemblers and distributors of aircraft and aircraft parts. Defense companies include producers of components and equipment for the defense industry, such as military aircraft, radar equipment and weapons. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Its investment advisor is BlackRock Fund Advisors.
The Stock Rating indicates the combined score of our proprietary Earning Strength and Company Performance models. The rating scale is 0 - 10 with 10 being the highest.
At the time of publication the editor and affiliated companies own the following positions: None
Note: Positions may be bought or sold while this publication is in circulation without notice.
Looking for Additional Guidance in the Markets?
StateoftheMarkets.com offers actionable portfolio services designed to help you manage your investment portfolio.
The Daily Decision: A disciplined approach to managing stock market risk on a daily basis. Forget the fast money and the latest, greatest option trade. Investors first need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets. The Daily Decision system was up 30.3% in 2012, finished 2013 +44.3%, and the system sports an average compound rate of return of more than 30% per year.
The Insiders Portfolio: A truly unique approach to stock picking. This portfolio buys what those who know their company's best are buying - but ONLY when they are buying heavily. The Insiders finished 2013 +47.25% and has nearly doubled the S&P 500 since 2009.
The IRA/401K Advisor: Stop ignoring your 401K! Long-term oriented service designed for IRAs and 401Ks - The IRA-401K Advisor. This portfolio strives to keep retirement accounts positioned on the right side of the markets, and at an extremely low price, it is a service you really can't afford not to use while planning for retirement.
The Top 5 Portfolio: A stock portfolio that keeps things simple, focusing on SotM's five favorite positions. This concentrated stock portfolio employs a rigorous custom stock selection approach to identify market leaders. Risk management strategies are built in to every position.
All StateoftheMarkets.com Premium Services include a 30-day money-back guarantee.
The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.
Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.
The analysis provided is based on both technical and fundamental research and is provided 'as is' without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
The information contained in our websites and StateoftheMarkets.com publications is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.
Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.
Index returns are price only and do not include the reinvestment of dividends. The S&P 500 is a stock market index containing the stocks of 500 large-cap corporations, most of which are US companies. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill. S&P 500 is used in reference not only to the index but also to the 500 companies that have their common stock included in the index.
Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.
© 2014 StateoftheMarkets.com - StateoftheMarkets.com does not provide investment advice. All rights reserved.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.