CHICAGO, May 29, 2014 /PRNewswire/ -- Zacks Equity Research highlights Cooper Tire (NYSE:CTB-Free Report) as the Bull of the Day and JPMorgan Chase (NYSE:JPM-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis onNorthrop Grumman (NYSE:NOC-Free Report), Lockheed Martin (NYSE:LMT-Free Report) and Boeing (NYSE:BA-Free Report).
Here is a synopsis of all five stocks:
This market is as hot as the weather. With a hot market comes crazy valuations and wild stock movements. Rather than jump after a stock that's already made its big moves a market like this calls for a little more research. A little more digging to find that diamond in the rough that may outpace the broad index in the short run. Today I found a turnaround story where the rubber meets the road for the Bull of the Day, Cooper Tire (NYSE:CTB-Free Report).
With Memorial Day just a few short days ago, I thought keeping an American theme was appropriate. Cooper Tire was founded in 1914 and is headquartered in Findlay, Ohio. They specialize in the design, manufacture, marketing and sales of replacement automobile and truck tires. As American as apple pie, Cooper Tire manufactured pontoons, landing boats, waterproof bags and camouflage for the troops during World War II. Cooper owns a variety of subsidiaries including the famous racing brand Mickey Thompson and part of the South Korean brand Kuhmo.
After a few quarters of disappointing earnings reports Cooper has found traction recently and is regaining ground it lost. An ugly year of misses and downward revisions saw the stock slapped down from the mid-$30s to low $20s during 2013. A quick look at the price and consensus chart outlines the damage of the earnings gaffes.
So what happened over at Cooper that caused all this? Cooper nearly merged with Apollo Tyres out of India. News of merger caused a worker strike out of protest in a Chinese joint venture manufacturing facility. The strike had a disastrous impact on earnings for the company. That's what needed to work itself out in time. The merger with Apollo was ultimately terminated. Now you're left with a company that has the same growth prospects as it had pre-merger but it's trading 20% off.
While speaking at a London conference on capitalism, IMF managing director Christine Lagarde said progress on building a safer financial system had been slowed by industry attempts to halt the introduction of tougher rules on banks. The comments were backed up by the Bank of England's Mark Carney saying "unbridled faith in financial markets" before the recent crisis, rising inequality and corruption had damaged the "social fabric." No doubt they are referring to scandals such as LIBOR manipulation, insider trading, and that wonky catch phrase from the Great Recession, "Too big to fail."
Apparently "Too big to fail" also means "Too big to grow" as increased regulation has led to decreased profits for many banks around the country. Or at least that's what the banks will tell you as their shelling out multi-billion dollar settlements for their bad behavior. Which leads us to today's Bear of the Day, JPMorgan Chase (NYSE:JPM-Free Report).
Now before you go storming into your local Chase branch and start yelling at some twenty-something trying to make ends meet you have to recognize that most of this madness isn't at the surface. The banking scandals that have rocked the industry came from the top, not the kid helping you fill out your mortgage application. But let's try to keep emotions from clouding our judgment and take a look at the numbers:
$13 billion settlement over its sale before the financial crisis of mortgage-backed securities
$110 million settlement for manipulation of Japanese yen version of LIBOR in 2007
$2.6 billion to victims of Madoff's fraud
$4.5 billion to 21 institutional investors to settle MBS claims
$100 million to the CFTC to settle charges regarding the "London Whale"
$920 million to the OCC, the SEC, the Fed, and the UK Financial Conduct Authority
$389 million to credit-card customers
There are three or four other eye-popping settlements you could throw in here. These are part of the reason why fourteen analysts have revised their earnings estimates to the downside in the last 60 days for JPM, dropping consensus for the current year from $5.98 per share down to $5.45 and next year's numbers down from $6.37 to $6.09.
3 Defense Aircraft Stock Picks
Durable orders increased by 0.8% in April after rising by 3.6% in March. This may seem to be a significant decline, but is not being viewed as a hugely negative signal by market analysts. In fact, it was widely expected that orders for durable manufactured goods would decline. Additionally, March orders have also been revised upwards from the earlier figure of 2.6%.
Military Aircraft Powers Growth
Defense aircraft have been the major reason for the increase in durable orders, rising by 13.1%. This has helped to offset the 4.1% decline in commercial aircraft demand. Motor vehicle orders have also dropped 1% after edging up 0.3% in March. But military aircraft demand has triggered a 2.3% increase in demand for transportation goods.
A matter of greater concern is the quality of growth these numbers indicate. Demand for core capital goods is considered to be an indicator of plans for business investment. This number has declined by 1.2% over the month of April. However, investment is expected to pick up going forward as demand also rises.
Does Sequestration Matter?
The sequester that went into effect at the start of Mar 2013 will cut spending by a total of approximately $1.1 trillion over the 8-year period from 2013 to 2021.Yet, the aerospace and defense industry is holding up well in 2014 thanks to technological innovations, big contracts, acquisitions and growing commercial demand.
Since the domestic aerospace and defense sector is facing budget cuts and a constrained spending environment, the industry is looking for growth from international orders. Additionally, a number of emerging markets as well as developed nations such as India, Japan, the United Arab Emirates, Saudi Arabia and Brazil are boosting defense spending and generating business for the U.S. aerospace and defense companies.
Below we present three defense aircraft stocks which possess the potential to grow appreciably, each of which also has a good Zacks rank.
Northrop Grumman Corporation
Northrop Grumman (NYSE:NOC-Free Report) supplies a broad array of products and services to the U.S. Department of Defense (DoD), including electronic systems, information technology, aircraft, space technology, and systems integration services.
Northrop Grumman reported first-quarter 2014 adjusted earnings of $2.40 per share, surpassing the Zacks Consensus Estimate of $2.15 by 11.6%. Last week, Northrop Grumman Corp. boosted its annual dividend by 15.0%, marking the 11th consecutive annual increase.
Northrop Grumman Corporation holds a Zacks Rank #3 (Hold) and has expected earnings growth of 16.9%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 13.05.
Lockheed Martin Corporation
Lockheed Martin (NYSE:LMT-Free Report) is the largest defense contractor in the world. The company's aeronautics business is engaged in the design, research and development, systems integration, production and support of advanced military aircraft and related technologies.
The company reported first quarter 2014 earnings of $2.87 per share, comfortably surpassing the Zacks Consensus Estimate of $2.52 by 13.9%. Last month, Lockheed declared a dividend of $1.33 per share for the second quarter 2014. The dividend is payable on Jun 27, 2014 to holders of record as of the close of business on Jun 2, 2014.
Currently the company holds a Zacks Rank #3 (Hold) and has expected earnings growth of 0.90%. It has a P/E (F1) of 14.83.
The Boeing Company
Boeing's (NYSE:BA-Free Report) first quarter revenue from its defense, space & security segment was $7,633 million. Global Services & Support registered an improvement of 6%. Deliveries in the defense and space business numbered 46 in the first quarter 2014 compared with 45 in the comparable period last year.
The company reported adjusted first quarter 2014 earnings of $1.76 per share, beating the Zacks Consensus Estimate as well as ahead of the year-ago adjusted profit of $1.54 by 14.3%.
Apart from a Zacks Rank #3 (Hold), Boeing has expected earnings growth of 8.4% for the next financial year. It has a P/E (F1) of 17.50.
The defense aircraft segment has overcome the effects of sequestration and has also found new markets to support growth. This is why these stocks would make good additions to your portfolio.
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