It’s safe to say that the aerospace industry had a difficult 2020 and is still struggling with the impacts of the pandemic. Thanks to huge declines in air traffic and a dramatic reduction in aviation orders, many of the stock prices of these companies have not yet recovered to pre-pandemic levels. Although these are things that might scare off some investors, the truth is that there are high-quality aerospace companies still generating steady cash that could be bargains at their current levels. Stock pickers that have an eye for excellence might be rewarded over the long-term by buying aerospace companies on weakness in 2021.
We know that there is likely a ton of pent-up demand for travel, which could lead to an ongoing recovery for companies that are exposed to commercial aerospace. There are also several companies on the defense side of the industry that have strong backlogs and could be in for a big rebound in 2021. If you are interested in adding aerospace stocks to your investment plans, it is crucial to be very selective about the companies you add. That’s why we’ve put together a list of 3 aerospace stocks set to fly in 2021 to help you narrow your focus.
Raytheon Technologies (NYSE:RTX)
Raytheon Technologies is an interesting option in aerospace because it offers investors a nice mix of both commercial and defense businesses. The company’s commercial business is involved in selling aerospace products and services as well as aircraft engines to airlines, aircraft leasing companies, governments, and airframers. The defense side of the company is focused on developing things like advanced sensors, software solutions, and end-to-end solutions along with advanced technology that helps to detect threats with missile and radar systems.
With customers including the U.S. Navy, Army, Air Force, Marine Corps, Boeing, Airbus, and the Department of Defense, Raytheon Technologies is a trusted name in the industry. It’s also worth noting that defense spending isn’t expected to decrease with the Biden Administration’s initial budget, which bodes well for Raytheon going forward. The stock offers investors a dividend yield of 2.45% at this time and its near-equal balance between commercial aerospace and defense means that the company can hold up well regardless of how long a full recovery in commercial air travel takes.
Lockheed Martin (NYSE:LMT)
Another aerospace stock that could be set to take off this year is Lockheed Martin, one of the world’s largest defense, security, and intelligence firms. This is a “best-in-breed” blue-chip company that plays a key role in the U.S. economy. Lockheed specializes in making fighter jets and military transport planes, but the company also has missiles and fire control, rotary and mission systems, and space operating segments. When it comes to owning an aerospace company at this time, you want to buy the best. The fact that Lockheed Martin is the lead contractor for most of the defense programs in the U.S. is certainly reassuring for long-term investors, and the company has a strong $147 billion backlog at this time.
Lockheed Martin stock is currently trading well below its 5-year forward P/E average, which means it could be a bargain at current levels. The company’s Q4 earnings were very solid, as Q4 sales grew by 7% year-over-year to $17 billion even with the economic impacts of the pandemic. The company’s management increased its forward guidance after the last earnings report and investors should also be interested in the company’s plans to acquire Aerojet Rocketdyne for $4.4 billion in the second half of the year which would essentially help Lockheed corner the hypersonic propulsion market. The stock offers a 3.00% dividend yield and is a company that could be a great core holding in your long-term portfolio.
Honeywell International (NYSE:HON)
If you are interested in a company that offers exposure to the aerospace industry along with other industrial markets, Honeywell is a great choice. This diversified company has four segments including aerospace, home and building technologies, performance materials and technologies, and safety and productivity solutions. While the recovery in commercial aviation has a long way to go, Honeywell generates enough revenue with its other business segments to weather the storm. That’s probably why the share price has held up better than many of the other companies in the aerospace industry and is up over 22.5% over the past year.
Honeywell has a very strong presence in the aerospace industry and supplies aerospace products and services like auxiliary power units, propulsion engines, electric power systems, engine controls, radar and surveillance systems, and more. The company also has a history of dividend increases and a share buyback program that could help to boost the price this year. Honeywell stock also offers a 1.76% dividend yield at this time. The bottom line here is that Honeywell is a quality name with a strong management team and diverse business model that fits well into any long-term portfolio.
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