Dan Russo of Chaikin Analytics recently sat down with Real Vision to share his take on one particular sub-industry: Aerospace and Defense ($ITA). While Boeing ($BA) has been a laggard and just had a very lackluster earnings report, Dan still likes many of the other stocks within the group. He also notes that internally at Chaikin Analytics, they have 20 different names in the Aerospace and Defense industry with a rating of “Bullish” or “Very Bullish”, and just 3 stocks with a “Bearish” or “Very Bearish” rating. On top of this, the fact that the models he uses are forward-looking, he expects the outperformance of these lesser-known names to continue.
To further his point, Dan points out that Equally-weighted Aerospace & Defense ($XAR) has been outperforming the broad market on many timeframes, including the 3-, 6-, and 12-month spans:
So, how does Dan feel is the best way to profit from this bullishness? Should we be buying $ITA or another ETF? Dan says no, and adds that we need to drill deeper into the individual holdings of these ETFs. One of the names that jumps out to him is Hexel ($HXL). This stock has a bullish rating within his system and just had a very positive earnings report. To add to this, Dan notes the earnings consistency the company shows. Chaikin Money Flow remains solid and shows continued accumulation, even at the highs.
Another individual stock that Dan likes is Arconic ($ARNC), which is a direct supplier to Boeing. The rating here, according to Dan’s view, is “Very Bullish” and thus it is expected to outperform over the next 3- to 6-months. He also states that the chart is currently in an “oversold” position as well.
Of the two, Dan says he likes Arconic the most given its higher rating. The biggest risks to either trade are:
- Headline risk around Boeing
- General economic slowdown
Dan’s Hexel target price is $94/share over the next 3- to 6-months. On Arconic, he has a target of $30/share over the same time span.
In regards to ETF weightings, Hexcel has a 4.2% (#8) weighting in $XAR and a 1.8% (#15) weighting in $ITA. Arconic holds a 4.3% (#3) weighting in $XAR and a weighting of 2.6% (#11) in $ITA. Again, despite the large weighting of Boeing within the Aerospace & Defense and the fact that the stock has been hit hard over the last few months, Dan thinks the rest of the industry is doing very well. In fact, it’s the ability of $ITA to show strength at a time like this that really grabs Dan’s attention. According to him, looking at the individual holdings gives a much better sense of the overall fundamental health of the area. And in his eyes, it’s a great space to have exposure to as things stand today.