NEW DIRECTIONAL CALL PLAYS
General Dynamics - GD - close: 152.85 change: +1.24
Stop Loss: 147.50
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.3 million
Entry on August -- at $---.--
Listed on August 17, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: Yes, see below
Worries over the U.S. sequestration defense cuts are in the rear view mirror for companies like GD. They have adjusted and now they are adding international customers to account for slower defense spending growth from the U.S. The stock has delivered strong gains over the last few years and the relative strength continues this year. The S&P 500 index is up +2.1% year to date. The defense and aerospace ETF (ITA) is up +5.8%. Yet shares of GD are up +11% and just closed at a new all-time high.
GD is considered part of the industrial goods sector. The company is a huge aerospace and defense company. They have four significant segments: aerospace, combat systems, information systems, and marine systems (ships and submarines). The defense industry in the U.S. has been saddled with significant budget cuts due to the 2011 sequestration deal that will shave $500 billion from U.S. defense spending from 2012 through 2021. The industry has managed to thrive in spite of these budget cuts.
GD has beaten Wall Street's earnings estimates several quarters in a row. They have also managed to beat analysts revenue estimates the last three quarters in a row. GD's most recent earnings report was July 29th. Management announced earnings of $2.27 per share, which was 22 cents better than expected. It also represents earnings growth of +44% from a year ago. Revenues were up +5.5% to $7.88 billion, above estimates. Margins improved +1% to 13.7%. Furthermore GD management raised their 2015 earnings guidance to $8.70-8.80 per share, above Wall Street estimates. GD's backlog was $70 billion at the end of the second quarter.
We all know that the world isn't getting any safer and the major defense contractors have been working on boosting their overseas sales just in case the U.S. decides to cut defense spending again. Considering the current state of world affairs with a growing military rival in China, a new cold war brewing with Russia, and an openly hostile ISIS, defense spending should stay healthy.
GD has a very active stock buyback program. They purchased 7.5 million shares last quarter. The big buyback is one reason Goldman Sachs listed GD as one of their top five favorite stocks recently.
Shares of GD have been marching higher since they bottomed in April this year. The point & figure chart is bullish and forecasting a $181.00 target. The last couple of weeks have seen GD consolidating sideways after shares spiked higher on its July 29th earnings report. Today saw GD set a new closing high and it's about to breakout past its intraday high. Tonight we are suggesting a trigger to buy calls at $153.55.
Trigger @ $153.55
- Suggested Positions -
Buy the NOV $160 CALL (GD151120C160) current ask $2.55
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike