Raytheon (RTX)

Bit out of favour and down in dumps. Even mix between aerospace and defense, both have massive demand and quite strong topline growth, good profitability. Engine issue has been an overhang. Cashflow hasn't yet been hit, as added service costs will come over next 2-3 years. Accelerated share buyback plan. Inexpensive multiple of 16.5x for such a strong business. Headline risk in the aviation space. Yield is 2.6%.

Feeds into today's theme of a company that can go against the grain, has a rock-solid balance sheet, and can operate in a counter-cyclical manner.

The question also included the defense sector. He doesn't know Raytheon itself but he likes the defense sector. There is a lot of Geo-political risk. He owns General Dynamics and Howmet. You could also buy the ETF -XAR for the defense stocks space.

Defense spending expected to rise. Stock price weakness the past year presenting a good time to buy. Commercial airspce business expected to grow. Concerns on supply chain not a big factor. Expecting margin improvement. Yield over 2%. Has been buying more shares and will continue to own. 

Had its troubles this year, which is costing about $5B to fix. A headache, but won't derail the company. Stock price has adjusted about 20%, lower valuation. Business is growing sharply, biggest backlog in history of $160B. His experience is that for problems that can be solved with time and effort, the shock to the stock value will dissipate over time as confidence builds. Investors should take advantage. Yield is 3%.

Defense backlog growing. Margins still need to catch up. Aerospace engine recall affecting stock price, we'll see how it resolves in 1-2 years. Overdone, likes stock long term, she's holding.

A spec because of their problems with engines. Otherwise, Lockheed is more stable.

Now called RTX, though some still say Raytheon. Seasonally, defence stocks do well this time of year as many deals get done. Shares are 20% below the top. This could run up. Has been climbing recently.

Due to geopolitical tension, demand for defense spending will be high. High quality r&d pipeline of products. More commercial travel after Covid-19 will help business. Valuation of share price an attractive entry point. Concerns over engine problems and product recalls are overblown. Strong management team. Good for long term investors. 

It recently rallied after an ugly few months, triggered by a major recall of jet engines that will cost them $3-3.5 billion. It's oversold. Reported last week: operating profit up 38% YOY, sales up 16% YOY and commercial after-market sales up 30% YOY

Diversified business with lots of products. 
Engineering problems causing error in metals within engine turbines.
Expecting engine problems to be a short term event.
Company has excellent reputation.
Good for long term investors. 
Expecting $9.5 billion in free cash flow by 2025.
Will continue to hold.

It depends on how much Washington will spend on defence and that debate is happening now. Problem is that defence contracts come and go without warning. Too volatile for him, so he's never owned it. That said, tensions in places like south Asia vs. the US will drive demand for RTX's products.

Current price pullback has occurred for good reason - glitch in new engine. 
Concerns for payments required to customers to fix problems.
Management losing credibility.
Risky buy at this time. 

It still yields 3%. There will be a credibility gap between what they said about the problem with their engines and the reality of them. He expects a lot of bad blood between RTX and the airlines who will lose some flight time because of this. Trades at 15x PE and will go lower, and may be then you can buy it.

Last quarter saw pullback in share price.
Defective metal used in production being fixed.
Defense spending on rise with conflict in Ukraine.
Still owns shares and will continue to own.
Attractive dividend yield ~3% (very sustainable).

Problems with some fan blade components, not as bad as it sounds and limited financial danger. He added to his position in the mid-$80s. He'd buy here. Very attractive on free cashflow yield basis.