May 26, 2013 in Business

Recent numbers aside, Textron appears poised for a rebound

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Associated Press photo

The 429, a Bell helicopter manufactured by Textron, takes a high-altitude flight in the Swiss Alps.
(Full-size photo)

Aerospace and defense company Textron (NYSE: TXT) sank some 13 percent in a single day last month, on a disappointing earnings report featuring a “soft” market for business jets. When stocks fall they can present opportunities, and Textron is worth considering at recent levels.

The company has a wide global reach, with businesses such as Cessna, Bell Helicopter and unmanned aircraft specialist AAI. Textron builds golf carts through its E-Z-GO subsidiary, commercial lawn mowers through Jacobsen and hand tools through Greenlee.

Via its ownership of Kautex, it also offers automotive parts such as gas tanks, camshafts and catalytic converters. Many focus on its military-centric products, such as armored security vehicles, rescue boats, hovercrafts and various weapons.

Textron’s latest quarter revealed flat revenue and earnings below expectations. Military spending has not been strong lately, and the automotive market has shown some weakness, too, but helicopters have been flying off the shelves.

Management has also noted, “(W)e believe the global business jet market still has significant long-term growth potential, and we remain committed to our new product plans.”

The stock recently sported a price-to-earnings (P/E) ratio of 14, while its forward P/E is just 10, below its five-year average. It’s worth keeping an eye on.

Ask the Fool

Q: Are 401(k)s really so worthwhile? – D.Y., St. Augustine, Fla.

A: They certainly are for most of us. With a 401(k), your employer plunks the portion of your salary that you specify into the account. That contribution comes from pre-tax income. So if you earn $50,000 per year and can send $5,000 to your 401(k), you’ll have only $45,000 in taxable income to report. Your taxes will be lower, and you’ll have some pre-tax dollars invested for the future.

All pre-tax contributions grow untaxed until you withdraw them in retirement, as you must generally do starting at age 70 1/2. Then they’re taxed at your ordinary income rate. Money in a 401(k) can usually be invested in a variety of things. We recommend broad-market stock index funds, such as ones based on the S&P 500. It can be good to balance that with some bonds, too, but less so the further you are from retirement.

Best of all, many employers match a portion of your 401(k) contributions. If your company does, make the most of it – that’s free money! Learn more at fool.com/retirement and bankrate.com/finance/topic /401k.aspx.

My dumbest investment

In 1969, I finally had enough cash with which to invest in some stocks. I had been studying stock reports for many years, and picked three low-priced stocks that had consistently paid dividends. I went to a local broker and told him what I wanted. He countered by suggesting several stocks that he thought would grow much faster – a sulfur miner and a real-estate company.

Well, I bought those two, and one of my own ideas as well. Within six years, both his companies were no longer trading, but my stock was still around and paying its dividends. Now I more or less follow my own advice, and I’ve usually done well. – F.J., via email

The Fool responds: This is a great reminder that we small investors can do well on our own by reading up on investing, carefully researching stocks and making our own decisions. Some brokers are not that skilled, after all, and some have conflicts of interest, too.

Consistent dividend payers make terrific candidates for a long-term stock portfolio, because if and when the market slumps, they’ll still generate income.


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