October 24, 2018
You've probably heard me say, "Our best offense is a strong defense of fundamentally superior stocks." In light of all the recent market gyrations, this statement rings even more true as the current third-quarter earnings season heats up.
On Tuesday, the broader indices were dragged lower due to the emerging market crisis. Fears are spreading that the economic crisis in Turkey, Malaysia, Indonesia and Vietnam will negatively impact China and Japan.
But if you've been following my advice, your portfolios should be loaded up with more domestic stocks. I advised moving away from Chinese stocks, in particular, back at the end of June when the Chinese yuan was weakening. And given the strength of the U.S. economy, we shifted our focus to more domestic stocks.
The reality is that the U.S. remains an oasis. As a result, more domestic companies are relatively immune to the emerging market crisis. In other words, they're continuing to grow their business, add to their top and bottom lines and reward shareholders handsomely.
So, once the dust settles and liquidity returns, we should see domestic stocks with superior fundamentals "bounce like fresh tennis balls."
The good news: This is already starting to happen! Several defensive companies released results from the most-recent quarter: Two climbed higher on positive earnings, while another dipped slightly. I currently recommend all three in my Growth Investor service.
Let's take a closer look at each of these companies, and discuss my current advice for each.
Lockheed Martin (LMT) is a defense contractor, with headquarters in Bethesda, Maryland. The company has several core businesses, including aeronautics, missiles, information systems, mission systems and space systems. And the company provides its services and products to the U.S. military.
In the third quarter, Lockheed Martin brought in $14.3 billion in net sales, a 16.3% increase over Q3 2017. This beat the $13.07 billion consensus sales estimate by 9.4%.
Lockheed Martin also reported $1.5 billion in net earnings, or $5.14 per share. Compared with Q3 2017, that represented 53% earnings growth. Analysts were expecting adjusted earnings of $4.31 per share, so Lockheed Martin posted a hefty earnings surprise of 19.3%.
Pleased with these results, Lockheed Martin lifted its outlook. For 2018, the company now expects to bring in $53 billion in net sales, above the Street view of $52.64 billion.
Wall Street was also pleased with Lockheed Martin's third-quarter results and forward-looking guidance. LMT opened nicely higher on Tuesday morning, before pulling back slightly with the overall market. LMT currently earns a B-rating from Dividend Grader and a C-rating in Portfolio Grader. Due to its Dividend Grader ranking, I currently recommend it in my Growth Investor service as a buy.
As one of the world's largest defense contractors, Northrop Grumman (NOC) rakes in nearly $25 billion in annual sales for aircraft carriers, tankers, strategic bombers and radar systems. During the third quarter, which was announced Wednesday morning, the defense contractor noted that its order backlog jumped to $52.6 billion.
Compared with Q3 2017, sales climbed 23% year-on-year to $8.1 billion. This beat the $8.0 billion consensus sales estimate by 1.3%. Over the same period, operating income jumped 41% to $1.2 billion, or $6.54 per share. Analysts were looking for $4.37 EPS, so Northrop Grumman posted a whopping 53.2% earnings surprise.
The third quarter marked the fifth-straight quarter that Northrop Grumman topped analysts' earnings estimates. But, despite this stunning report, NOC pulled back in trading on Wednesday morning. The stock current earns an A-rating from Dividend Grader and a C-rating from Portfolio Grader. So NOC is an attractive dividend play with a 1.6% annual dividend yield.
Last, but certainly not least, The Boeing Company (BA) is the biggest aerospace company in the world. The company is most well-known for providing commercial and military aircraft. In the third quarter, which was released this morning, the company reported that its backlog expanded to $491 billion, which included more than 5,800 commercial aircraft.
For the third quarter, Boeing reported core earnings of $3.58 per share on $25.1 billion in sales. This represented 37% annual earnings growth and 4% annual sales growth. Analysts were expecting core earnings of $3.47 per share on $23.9 billion in revenue, so Boeing posted a 3.2% earnings surprise and a 5.0% sales surprise.
Thanks to the strong third-quarter results, Boeing lifted its full-year outlook for 2018. The company now expects to bring in between $98.0 billion and $100.0 billion, up from its prior guidance of $97.0 billion to $99.0 billion. It also expects to post core earnings of $14.90 to $15.10 per share, up from its prior guidance of between $14.30 and $14.50 EPS. Both forecasts are above the Street view.
No surprise: BA soared out of the gates this morning. The stock earns a B-rating from Dividend Grader and a B-rating from Portfolio Grader. So if you're looking for a nice blend of income and growth, you might want to consider adding BA to your personal portfolio.
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That's all I have for you this week—I'll be back online on Monday with your latest Portfolio Grader upgrades and downgrades.