A bigger-than-expected GDP reading lifted markets today, but two items provide what could be a temporary boost.
First, personal consumption expenditures jumped 3.4% thanks to a pop in car sales, which were aided by the temporary cash-for-clunkers program. Cash-for-clunkers brought buyers to the market that normally would have waited to make a car purchase in the future, thus the program borrowed from future demand. As a result, we can’t expect to see car sales – which accounted for a full percentage point of the overall increasing GDP for the quarter – to provide this type of boost again anytime soon.
Second, homebuilding soared 23.5%, adding a half percentage point to GDP growth. This too may be a temporary as the federal homebuyer’s tax credit stirred demand. It appears the tax credit will be extended, but it can’t last forever.
The last few days I have talked about consumer headwinds and potential consequences for the economy. The first story in today’s quick hit explains that inventories will take over for the consumer in the coming quarters. Let’s hope that happens.
On a totally different note…I can’t help but notice how cheap Lockheed Martin (LMT) shares are looking.
LMT’s guidance showed us that 2010 will be weaker-than-expected, which is causing analysts to rein in long-term revenue growth and margins estimates. But LMT’s program positions, which are tied to the baseline defense budget (which doesn’t include wars in Iraq and Afghanistan) and the F-35 Joint Strike Fighter (the next-gen fighter plane), keep their long-term potential intact.
LMT trades at a whopping 47% discount to the S&P 500. Yet the firm generates $8.74 of free cash flow per share of common equity, has a return on equity over 50%, and pays a 3.6% dividend that grows more than 20% annually.
Defense valuations are unusually low across the board, even when compared to prior periods of declining defense spending. But, defense companies are like insurance: no one knows when the next war or crisis will break, but when it does, margins and sales rocket. Now is your chance to buy them cheap.
More to come on LMT tomorrow…
Quick Hits
- Inventories May Take Over From U.S. Consumers as Engine of Economic Growth
- Fed Ending Treasury Purchases That Held Down Yields, Stabilized Housing
- Weak Dollar Is ‘Welcome Change’ for Profits
--
Peter J. Lazaroff, Investment Analyst
No comments:
Post a Comment