A top stock in a top-rated industry, aerospace and defense contractor General Dynamics (GD | Quote | Chart | News | PowerRating) is our featured stock spotlight of the week.
Barron's recently profiled the company, pointing to the fact that the stock was likely to sell-off after their "Wall Street friendly" CEO was replaced by a newcomer. This potential sell-off, suggested Barron's, was likely a true opportunity for investors insofar as General Dynamics, in Barron's opinion, was in excellent shape and that no new CEO was likely to change that in the short term.
Our approach to General Dynamics is a little more straightforward. We like both General Dynamics' Long Term PowerRating, as well as the PowerRating of its industry group, Aerospace & Defense. One of the major ways we encourage active investors and long term traders to use our Long Term PowerRatings is to stick with high Long Term PowerRatings stocks that are a part of industries that also have high PowerRatings. In this regard, General Dynamics makes the grade.
General Dynamics has a Long Term PowerRating of 8. Our research, looking at thousands of simulated stock trades between 1995 and 2007, indicates that stocks with Long Term PowerRatings of 8 have tended to be higher one year later more than 74% of the time. By contrast, the average stock was higher one year later less than 68% of the time.
Not only have high Long Term PowerRatings stocks been more reliable than the average stock, but also these stocks have simply been better performers in a year's time. We found that 8-rated stocks, for example, tended to gain an average of more than 17% after one year. The average stock, by comparison, gained between 12-13% on average in a year's time.
While stocks with high Long Term PowerRatings are usually excellent investment candidates, stocks with high Long Term PowerRatings that also come from industries with high PowerRatings are all the better in terms of reliability and potential performance. Because much of a stock's movement has to do with the industry group to which the stock belongs, stocks in high PowerRating industry groups are the kind of stocks that should garner serious attention for the active investor looking to build a winning stock portfolio.
Consider this. General Dynamics comes from the Aerospace & Defense Products and Services industry, an industry with a PowerRating of 10. This is our highest rating and the industries with this PowerRating have been truly impressive performers. We found that while the average industry group provided average annualized returns of 14.61% between 1995 and 2007, industries with PowerRatings of 10 actually produced annualized returns of more than 35% on average over the same time period.
General Dynamics recently reported a 32% surge in profits for the first quarter, handily beating Wall Street estimates. Revenues were also up dramatically for the company in the first quarter. General Dynamics shares the Aerospace & Defense Products and Services industry group with fellow, 8-rated stock, Lockheed Martin (LMT | Quote | Chart | News | PowerRating).
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David Penn is Senior Editor for PowerRatings.net.
