Stock Initiation: Raytheon (RTN)
After much contemplation, I decided it was time to move into a new position today and purchased half of my position in Raytheon at $188.50. Raytheon is a defense company primarily known for the production of Patriot Missiles - a surface to air anti-missle defense system. However, they also produce other items, play in cyber security and deep analytical analysis as well. My theory is related to the fact that the US is looking to bolster their own military capabilities, to which Trump's declaration for a space force added to, but also the fact that the US is no longer spending as much of its money to protect its allies. This means they need to increase their own purchases and Trump is using defense as something he's trying to push in all of his trade discussions. These situations, I believe, spell out a strong runway towards ongoing profits in what is generally a robust global economy right now. It is true that the Trade war pressures has the potential to strain some of the same world governments we're hoping to have spend on products, but I currently see that as a limited risk. Additional risk that exists right now is that the market is selling defense contractors on the concept that President Trump and North Korea's Kim Jon Un's meeting for peace indicates there will be less of a need for defense spending. I just don't see that being the case here. What they signed had no further impact than what was already established. While it has deescalated activities on the Korean peninsula for now, given the US's agreement to stop military exercises with South Korea, it's hard to believe these two large egos will stay in check over a long period of time.
One of the reasons I chose to buy this stock is because it is now almost 15% below its 52-week high which was back in April. The story is strong, but the stock is getting beat up a bit. I could see this stock pushing towards a 20 percent decline, given the stock's current chart trends, however, I needed a good entry point so I don't miss things entirely. That said, This is also a potentially dangerous time. Defense companies have had a long multi-year run. At the same time, I'm trying to pick up a stock that's breaking through its 200 day moving average floor and has generally negative charting trends. I also believe it's going to break through and below that floor. That doesn't currently deter my longer term view, though, given that management has a solid history during tough economic times. But it is this negative aspect that I have to keep testing as I move forward as well.
Analyst expectations at this time are for earnings of $9.91 for 2018 and $11.4 for 2019, meaning they expect earnings growth of around 15% year over year. Currently the stock is selling for nineteen times those 2018 forward earnings at a time where we are starting to think about 2019 earnings. I see no reason why a stock like this can't be selling at twenty-one times earnings with 15% earnings growth rate. Given that I'm looking at 2019 earnings, I'm have a price target of $239. The stock does provide a dividend, but it's less than 2%, so not very helpful on the down side at this time. I believe my next buy point is when I see signs of a bottom or in the area of that 20% pullback.
Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash. Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.
One of the reasons I chose to buy this stock is because it is now almost 15% below its 52-week high which was back in April. The story is strong, but the stock is getting beat up a bit. I could see this stock pushing towards a 20 percent decline, given the stock's current chart trends, however, I needed a good entry point so I don't miss things entirely. That said, This is also a potentially dangerous time. Defense companies have had a long multi-year run. At the same time, I'm trying to pick up a stock that's breaking through its 200 day moving average floor and has generally negative charting trends. I also believe it's going to break through and below that floor. That doesn't currently deter my longer term view, though, given that management has a solid history during tough economic times. But it is this negative aspect that I have to keep testing as I move forward as well.
Analyst expectations at this time are for earnings of $9.91 for 2018 and $11.4 for 2019, meaning they expect earnings growth of around 15% year over year. Currently the stock is selling for nineteen times those 2018 forward earnings at a time where we are starting to think about 2019 earnings. I see no reason why a stock like this can't be selling at twenty-one times earnings with 15% earnings growth rate. Given that I'm looking at 2019 earnings, I'm have a price target of $239. The stock does provide a dividend, but it's less than 2%, so not very helpful on the down side at this time. I believe my next buy point is when I see signs of a bottom or in the area of that 20% pullback.
Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash. Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.
Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities. All views expressed are solely of my own and I am not a professional money manager. Please consult with your financial adviser before taking any action in your own portfolio.
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