boeing

PLEASE NOTE: This is our last Hotline for 2014. Our next Hotline will go out on Friday, January 9, 2015. CONAGRA FOODS INC., $36.86, New York symbol CAG, bought Ralcorp Holdings, the largest private-label food maker in the U.S., for $4.75 billion in January 2013. However, strong price competition is hurting this business’s sales and earnings. As a result, ConAgra wrote down its value by $247.0 million in its fiscal 2015 second quarter, which ended November 23, 2014. This charge is in addition to an earlier $602.2-million writedown....

Lockheed Martin Corp., $189.85, symbol LMT on New York (Shares outstanding: 315.9 million; Market cap: $60.0 billion; www.lockheedmartin.com), is the world’s largest defence contractor. In 2013, the U.S. government supplied 82% of its revenue. Lockheed has five divisions:

• Aeronautics (32% of revenue) makes and services military aircraft, including the F-16, F-22 and F-35 fighter jets, as well as C-130 transport planes;
• Space Systems (18%) makes rockets and satellites;
• Information Systems and Global Solutions (18%) offers data and audio/visual communication systems for governments and corporate clients;
• Missiles and Fire Control (17%) makes ballistic missiles and laser-guided bombs, as well as control systems for nuclear-powered vessels and nuclear plants;
• Mission Systems and Training (15%) offers control systems for military aircraft and ships. It also makes flight simulators and other training gear.

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Pat McKeough responds to many requests from members of his Inner Circle for specific stock tips as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week we offer you a report on one of the stocks profiled in these Q&A sessions. We give you Pat’s buy-hold-sell recommendation as well as his analysis of the stock. This is part of the specific buy, hold and sell advice we offer you in our daily posts. Every week you get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday, and “U.S. Stock Picks” on Thursday.

This week an Inner Circle Member asked us about a Canadian company that’s an international leader in the aircraft parts industry. Héroux-Devtek is the world’s third-largest maker of landing gear for aircraft, with clients such as Boeing, Embraer and Bombardier. Pat considers the company’s rising earnings in light of a recent acquisition and a new contract with Boeing. He also looks at the impact of shrinking military budgets around the globe on Héroux-Devtek’s prospects.

Q: Pat: What is your opinion on Héroux-Devtek Inc.? Best regards.

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Héroux-Devtek Inc., $11.40, symbol HRX on Toronto (Shares outstanding: 35.9 million; Market cap: $409.6 million; www.herouxdevtek.com), is the world’s third-largest maker of landing gear for aircraft, particularly helicopters and small jets. It also makes metal enclosures for airborne radar and other electronic equipment. Customers include Boeing, Sikorsky, Bombardier and Embraer, as well as various militaries. About 75% of Héroux-Devtek’s sales come from outside of Canada. In February 2014, the company paid $138.8 million for U.K.-based landing gear maker APPH Ltd., which has four plants in the U.K. and one in Wichita, Kansas....

Hexcel Corp., $43.28, symbol HXL on New York (Shares outstanding: 95.4 million; Market cap: $4.1 billion; www.hexcel.com), is one of the world’s leading makers of lightweight composite materials. Its products include carbon fibre, fibreglass electronic materials and structural fabrics.

The commercial airline market supplies 58% of Hexcel’s revenue, followed by space and defence (20%), business regional jets (7%), wind power (9%) and industrial (6%). Boeing accounts for 30% of Hexcel’s sales, and Airbus supplies 28%.

In the three months ended September 30, 2014, Hexcel’s revenue rose 9.6%, to $451.9 million from $412.3 million a year earlier. Commercial airline revenue gained 13.2%. Earnings per share increased 18.8%, to $0.57 from $0.48.

Hexcel holds cash of $37.7 million, or $0.40 a share. Its $430 million of long-term debt is just 10.5% of its $4.1-billion market cap.

The company’s exposure to the cyclical commercial airline industry adds risk. However, its products are widely used in the next generation of aircraft because they make airplanes quieter, up to 20% more fuel-efficient, stronger and more corrosion-resistant. Planes that use Hexcel’s materials include the Airbus 350 wide-body jetliner and the Boeing 787 Dreamliner.

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We still think investors will profit most—and with the least risk—by buying shares of well-established, dividend-paying stocks with strong business prospects.

These are companies that have strong positions in healthy industries. They also have strong management that will make the right moves to remain competitive in a changing marketplace.

Stocks like these give investors an additional measure of safety in today’s volatile markets. And the best ones offer an attractive combination of moderate p/e’s (the ratio of a stock’s price to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price) and promising growth prospects.

Here are 20 stocks we think meet those criteria:

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SPDR S&P 500 ETF $194.35 (New York symbol SPY; buy or sell through brokers; www.spdrs.com) holds the stocks in the S&P 500 Index, which consists of 500 major U.S. companies that are chosen based on their market cap, liquidity and industry group.

The index’s highest-weighted stocks are Apple, ExxonMobil, Microsoft, Procter & Gamble, Johnson & Johnson, J.P. Morgan Chase, Chevron, General Electric, Berkshire Hathaway, Wells Fargo, IBM, Pfizer, Verizon and AT&T. The fund’s expenses are just 0.10% of its assets.

If you want exposure to the S&P 500 Index, the SPDR S&P 500 ETF is a buy.

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Exchange traded funds (ETFs) are set up to mirror the performance of a stock market index or sub-index. They hold a more or less fixed selection of securities that represent the holdings that go into the calculation of the index or sub-index. ETFs trade on stock exchanges, just like stocks. That’s different from mutual funds, which you can only buy at the end of the day, at a price that reflects the fund’s value at the close of trading. Prices of ETFs are quoted in newspaper stock tables and online. You pay brokerage commissions to buy and sell them, but their low management fees give them a cost advantage over most mutual funds....

BOEING CO. $129 (New York symbol BA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 720.6 million; Market cap: $93.0 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.3%; TSINetwork Rating: Above Average; www.boeing.com) has won a contract from the U.S. National Aeronautics and Space Administration (NASA) to develop a new vehicle that will carry astronauts to and from the International Space Station. Boeing will build three of its Crew Space Transportation (CST-100) crew capsules at the Kennedy Space Center in Florida. The contract is worth $4.2 billion, which is equal to 5% of the company’s annual revenue of $88.4 billion. NASA, which retired its space shuttle fleet in 2011, plans to resume manned space flights in 2017....

Every Tuesday we bring you “Best Canadian Stocks.” You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You’ll read about stocks making moves you should know about, from coverage in one of our three newsletters featuring Canadian stocks—The Successful Investor, Stock Pickers Digest and Canadian Wealth Advisor. WESTJET AIRLINES (Toronto symbol WJA; www.westjet.com) serves 90 destinations in North America, Central America, the Caribbean and Europe. Its fleet of 107 modern Boeing 737s are 30% more fuel efficient than older jets. In June 2013, the company launched WestJet Encore, its Canadian regional airline. This business now operates 13 Bombardier Q400 NextGen turboprop planes, which seat 78 passengers....