PowerRatings Stock Spotlight: Northrop Grumman

I have been researching stocks that I believe will have the biggest bang for the buck combined with safety of principal when the market recovery hits.

The soon to happen presidential election combined with the financial meltdown creates an environment of uncertainty and fear. Regardless of who is elected and how long the recovery takes, one thing remains a constant or increases, is spending on national defense.

Therefore, to support my theory, I searched out companies that are well known in this space and ideally had technically pulled back from the highs during the recent market rout to create historically reasonable entry points, yet remained fundamentally strong. A recent upgrade in the long term PowerRating was also a must factor in the choice.

For those of you that are not familiar with our long term PowerRatings, here is a brief description before I get into this week's spotlighted stock. Long term investors need a tool to build a portfolio of the stocks most likely suited for gains over the next year. 12 years of extensive, statistically valid studies have proven our long term PowerRatings to be exactly what long term investors need to evaluate and choose stocks for their portfolios. The proprietary calculating engine behind the PowerRatings is constantly scanning the universe of stocks ranking them in a 1 to 10 rating system.

Our studies have clearly proven that stocks with a 9 long term PowerRating have a 79.1 % chance of being higher one year later. Those that earned a 10 rating possess an 81% chance of being higher one year later. The low rated 1 and 2 ranked stocks have proven to simply be too volatile thus risky for prudent long term investment. Although, sometimes these jumpy stocks can produce stellar returns our studies have proven that they are far too dangerous as an addition to your prudent, conservative long term portfolio. Let's take a closer look at our stock spotlight today, Northrop Grumman (NOC | Quote | Chart | News | PowerRating).

NOC began as an aircraft company in 1939, when Jack Northrup began making planes for the military. It has since acquired a multitude of companies such as Westinghouse Electric, Logicon, Teledyne Ryan, Litton, Newport News Shipbuilding, and TRW among many other smaller companies. These acquisitions and internal innovation has built NOC into a leading company in the defense space, across many sectors and disciplines.

Fundamentally, the third quarter results were solid with EPS up 6%, guidance increased by 0.10 cents per share, and sales are up 6%. However, what I find most enticing fundamentally is NOC has $70 billion in new orders that are backlogged. This is a huge number and should work nicely in the companies favor, in my opinion. They were just upgraded from a 4 to a 5 long term PowerRating earlier in the week showing improvement in this important factor.

Technically, the shares appear to have found support in the $37- $40.00/share range after spiking down in what looks like capitulation selling on October 13th. The stock has since bounced being capped by a 4 plus point advance during the monster rally on Tuesday. I like the fact that price is still way below the 50 and 200-day simple moving averages at 59.53 and 69.93 in order. Technically, it appears that plenty of upside potential exists just to get back to the historic average price. Reversion to the mean is a powerful trading concept and it may play out nicely here with substantial gains in the price. Technically, fundamentally and long term PowerRating upgrade wise, NOC looks like a strong candidate for your long term portfolio.

Learn what you need to know as an active investor looking to invest in companies with a history of financial strength and a track record for growth. Click the link above or call us at 888-484-8220 extension 1 to get your copy of the "5 Secrets to Successful Stock Investing" today!

David Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.