By Mike Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 11/10/11
As for my stock idea today, I'm going to venture into an industry that few investors really get excited about--aerospace. I have always had a small affinity towards the group because (a) it's a huge group, moneywise, and (b) there are few firms involved in it. And that means when business turns up, whether it's thanks to the economy or a new product, all of that money flows to relatively few companies.
I believe that's happening now, as a multi-year wave of orders thanks to expansion in the emerging markets (where air travel is growing nicely) and thanks to Boeing's new 787 Dreamliner, which is finally on track after years of delays.
One company benefiting from all this is
Hexcel (HXL), a parts maker for the group. Here's what I wrote about the company in the October 17 issue of Cabot Top Ten Trader:
"Aerospace stocks rarely get the blood pumping, but we've always liked the sector because there are so few players in the space ... so when business trends are good, institutional money tends to fly into the handful of firms that are benefiting. Hexcel is one of those firms, specializing in lightweight, high-performance structural materials that are mostly used in aerospace, though the firm also does a decent business in the industrial sector. But the growth is likely to come from increased airplane build rates in the quarters ahead; Boeing, for instance, recently delivered its first 787 Dreamliner (a mere three years late!), and as that program ramps, it could be a boon to Hexcel. (The company reportedly has about $1.5 million of composite materials on every 787.) Revenues have been steadily expanding since a dry spell during 2008 and early 2009, while earnings have been lifting off at a much faster clip. Earnings are projected to rise only 18% in 2012, but we feel that figure will be low, especially if Boeing keeps its act together with Dreamliner deliveries. It's not going to be your fastest horse, but Hexcel looks to be in the right place at the right time."
Since then, the company has reported a terrific third quarter, with earnings of 34 cents per share, trouncing estimates of 27 cents, while revenues leaped 19% from the year before (though revenues were up 32% in its commercial plane segment). HXL reacted well to the news, briefly tapping new-high ground before backing off and chopping around, just like the overall market. I was encouraged to see the stock back off on light volume yesterday as the Dow tanked nearly 400 points.
Still, I think the company's steady business and outlook means the next big move is likely up. I think taking a small position around here makes sense, with a stop-loss around 21. A break above 26 (accompanied by a healthier overall stock market) would be highly bullish.
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Michael Cintolo
Vice President of Investments and Editor of
Cabot Market Letter and
Cabot Top Ten Trader
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Trader. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.