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Aerospace: The Only Way Left to Play Global Growth

March 22nd, 2013
in contributors, syndication

Written by George Leong, B.Comm., Profit Confidential

The Boeing Company's (NYSE/BA) "787 Dreamliner" remains grounded, but the aerospace sector continues to deliver some excellent results and growth. In spite of its problems with the monstrous Dreamliner, Boeing managed to trade above $80.00 for the first time in nearly five years. News that Boeing had won a massive $18.0-billion deal from Ireland-based Ryanair Holdings plc (NASDAQ/RYAAY) is adding to the recent winnings of key contracts for Boeing.

Follow up:

Driving the buying over the next several decades will be steadily rising demand out of China and other global markets. Boeing estimates China will require 5,000 aircrafts valued at around $600 billion over the next 20 years. And that estimate may be conservative, especially if China continues to grow its income levels at a much faster pace. Boeing is looking at the new 787 Dreamliner as its big play on wide-bodied jet travel in spite of its current issues.

Chief rival Embraer S.A. (NYSE/ERJ) estimates the global demand will be around 28,000 new planes over the next two decades. There will be over 32,550 plans in the skies by 2031, up from the current 15,500, according to Embraer. The Asia-Pacific region will account for 35% of all plane purchases. The major airlines will operate in the U.S., China, Intra Western Europe, and India, according to Embraer. China will be the world's largest domestic plane market in 20 years. The findings are not a surprise and will be driven by higher disposable income in the emerging global markets along with the desire for travel. My feeling is that strong wealth generation in the world's largest emerging markets, including China and India, will help to drive the demand for commercial planes and defense and stocks in the equities market. (Read about my favorite markets in "Boost Your Portfolio Returns with the Emerging Markets.")

For investors, I view aerospace as a buying opportunity in the equities market.

Just take a look at the S&P Aerospace & Defense exchange-traded fund (ETF), which is hovering at its highest levels in a year and trading in an upward channel, based on my technical analysis.

Chart courtesy of www.StockCharts.com

So what companies do you consider buying?

In the big plane equities market, I like Boeing and Embraer.

And while I like Boeing in the big-cap stocks equities market, I also like some of the smaller aerospace parts and retrofit companies in the equities market.

B/E Aerospace, Inc. (NASDAQ/BEAV) has been an excellent growth story over the past decade and a good mid-cap aviation play in the equities market. The company makes the interior cabin products for both the new and retrofit aerospace markets.

Chart courtesy of www.StockCharts.com

Spirit AeroSystems Holdings, Inc. (NYSE/SPR) was formed in 2005, after Onex Corporation bought Spirit AeroSystems from Boeing Commercial Airplanes. The company has developed into a key mid-sized player in the aerospace equities market, including commercial, business and regional jets, and military/helicopter aircrafts.

In the micro-cap aerospace area, take a look at CPI Aerostructures, Inc. (NYSE/CVU)-a higher-risk aerospace play in the equities market that has added risk. The company manufactures structural aircraft parts mainly for the U.S. Air Force along with other areas of the U.S. defense sector. As a supplier, CPI will either be a prime contractor or a subcontractor for other companies. CPI is an aggressive opportunity in the equities market.

In my view, I see growing excitement in the aerospace stocks in the equities market, especially with the airplane builders and suppliers of parts and services.









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