Pat McKeough responds to many requests for specific advice on the best stocks to invest in and other questions on investment strategy and the economy from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.
This week, we received a question from an Inner Circle member about a stock that may not be well known to Canadian investors, but has a product which has made headlines. Israeli defense contractor Elbit Systems has seen its profits rise thanks to the sale of unmanned air vehicles, or drones. Pat looks at the company’s overall outlook and how much emphasis investors should put on one ‘hot’ product like drones.
Q: Pat, could you comment on Elbit Systems as a long-term investment?
A: Elbit Systems (symbol ESLT on Nasdaq; www.elbitsystems.com), is an Israeli firm that develops, makes and integrates electronics for military applications.
The company focuses on control, communications, surveillance and reconnaissance systems, including technology for unmanned defence vehicles. In addition, Elbit upgrades military hardware and sells avionics and structural products to commercial airplane makers.
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Elbit’s order backlog grows with drone contracts
In the three months ended March 31, 2013, Elbit’s revenue fell 1.5%, to $680.2 million from $690.8 million a year earlier. However, earnings per share excluding one-time items rose 27.1%, to $1.22 from $0.96, on lower expenses and taxes. That beat the consensus estimate of $0.85.
Elbit is Israel’s largest publicly traded defence company, but three-quarters of its business is overseas. North America accounted for 32% of its revenue in the latest quarter, with the Asia Pacific region at 19%, Europe at 18% and Latin America increasing to 10%.
The company ended the quarter with an order backlog of $5.78 billion, up from $5.68 billion at the end of 2012. Elbit continues to win contracts in a big growth area: unmanned air vehicles, or drones.
The stock trades at 11.2 times this year’s forecast earnings of $4 a share. It yields 2.7%.
In the Inner Circle Q&A, Pat looks at Elbit’s outlook and examines whether rising defense budgets in Latin America and the Asia-Pacific region can offset declining defense spending in the U.S. and Europe. He concludes with his clear buy-hold-sell advice on the stock.
COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members
The use of drones, particularly by the U.S. in Pakistan and Afghanistan, has been a source of a good deal of controversy in the past year. What is your view on investing in companies whose products generate controversy or protest from various groups? Let us know what you think.
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