Textron bucks trend, keeps profits aloft
The aviation and defense industries aren’t typically fast-growing ones, especially since they’re often vulnerable to cuts in government spending. An exception, though, might be Textron (NYSE: TXT), a manufacturer of business jets and single-jet Cessnas, military helicopters and protection systems, and an array of auto parts.
Textron’s latest quarterly results featured revenue rising 16.8 percent to $4.1 billion over the prior-year quarter and earnings per share jumping 26.7 percent.
Management tempered near-term expectations, but some see it merely being cautious, as it has been restructuring its Bell military products and helicopter division. With many one-time expenses now out of the way, it’s more likely that Bell will show profitability improvements.
Meanwhile, Bell Helicopter recently received an order for 200 upgraded emergency medical services helicopters.
Our current low-interest-rate environment is another boon for Textron, as it makes financing a single-engine Cessna a reasonable proposition. A growing economy should boost demand for business jets, too.
Textron’s stock is appealingly priced, with its recent price-to-earnings (P/E) ratio near 20 and its forward-looking P/E ratio near 15. (The Motley Fool owns shares of Textron.)
Ask the fool
Q: I see that Apple is being added to the Dow Jones industrial index, while AT&T is being kicked out. Do these changes happen often? - P.D., Chicago
A: The Dow, created way back in 1896 when it featured 12 companies, has long held 30, with its components shaken up a bit every few years. That happens when one or more holdings lose some stature, and/or when one or more contenders for a berth grow too hard to ignore, as was likely the case with Apple.
Here are the last few changes: In 2013, Nike, Visa and Goldman Sachs replaced Alcoa, Hewlett-Packard and Bank of America. In 2012, UnitedHealth Group replaced Kraft Foods. In 2009, Cisco Systems and Travelers replaced General Motors and Citigroup. In 2008, Kraft Foods, Bank of America and Chevron replaced AIG, Altria and Honeywell. In 2004, AIG, Pfizer and Verizon Communications replaced Eastman Kodak, International Paper and an old formation of AT&T. In 1999, Microsoft, Intel, SBC Communications and Home Depot replaced Chevron, Goodyear Tire and Rubber, Union Carbide and Sears.
Q: What’s “front-running”? - O.C., Marathon, Florida
A: Front-running is a shady practice engaged in by some in the financial world. In the mutual fund world, for example, a fund manager might buy a stock for a personal portfolio and then buy many shares of it for his fund, driving the price up and personally profiting from that. A talking head on television might rave about a company after having invested in it, while a broker, knowing that his firm will be releasing a positive report on a company, might buy shares of it for himself. These are all examples of front-running.
My dumbest investment
Years ago, when I was in an investment club, a member suggested a company that sold sandwiches via vending machines. Its stock had fallen from the high $40s per share to $0.14 per share. The club bought some and the stock fell to $0.09 per share.
I figured it would at least double, since it once had been so much higher. I bought 10,000 shares, for about $900. The stock rose to $0.14 and I could have sold for a profit, but I was greedy and hung on. Slowly, it fell to less than $0.01. - C.F., Oklahoma City
The Fool responds: This stock was firmly in penny-stock territory, a very risky arena full of shaky stocks that are easily manipulated. Worse, it had fallen by more than 99 percent. That’s a massive red flag, as stocks rarely plunge for no reason.
If it hadn’t been a penny stock, and you had done enough research on the company to be confident of a rosy future, buying wouldn’t have been so bad. But we should all be extra wary of or just avoid stocks trading for less than $5 per share.