In this week’s Macro Theme, we review our “Slowing Dragon” theme. We began discuss...
Aerospace ETF: Set for Flight
07/13/2015 8:00 am EST
We are in the midst of the largest aviation boom in history. To profit from this boom, this one investment opportunity balances safety and stunning market-beating returns, asserts Michael Robinson in Money Morning.
Despite falling fuel costs, global airlines are rapidly replacing their aging fleets with more fuel-efficient, tech-laden crafts.
And the skies are busier than ever. Boeing (BA) is now projecting that over the next 20 years global demand will reach 38,000 aircrafts, making it worth a combined $5.6 trillion.
But investing in jet makers isn't the only way to profit. Much of the profits in aerospace will come from firms that provide electronics and tech components, engines, subassemblies, and advanced materials.
That's why the iShares US Aerospace & Defense ETF (ITA) is a great way to pull in hefty profits from the entire aviation boom. Indeed, I consider it the single best aerospace play.
The beauty of this ETF is that it positions you to profit from just about every aspect of the aviation sector.
With nearly 40 stocks in its portfolio, the iShares Aerospace & Defense Fund includes aircraft makers, component suppliers, electronics firms, and much more.
Boeing and Lockheed are the fund's two biggest investments. Together, they account for more than 16% of the fund's holdings.
And these two stocks reflect another key aspect of the fund, it offers investors a balance between commercial aerospace and defense stocks, which make up about 45% of the fund's overall holdings.
The iShares Aerospace & Defense Fund is composed of proven winners with strong cash flow and solid earnings. I'm talking about such firms as:
Esterline Technologies (ESL) sells avionics, in-flight GPS, head-up displays for pilots, enhanced vision systems, and electronic flight management systems.
Hexcel Corp. (HXL), a supplier of advanced honeycomb composites, has a backlog of orders for jetliners that would take it roughly eight years to complete.
Raytheon (RTN) provides the Pentagon with capabilities for electronic warfare, laser rangefinders, military training, and advanced radar.
TransDigm Group (TDG) builds airframe segments, cockpit security components, and audio systems.
United Technologies (UTX) supplies flight control systems, power management, and jet engines to major airlines.
With this one investment, we benefit from the entire sector's growth while at the same time reducing the risk associated with investing in one stock at a time.
This ETF has greatly outperformed the broader market so far this year. Since the start of 2014, iShares Aerospace & Defense has gained nearly 14%.
This is the kind of foundational play that can really build your net worth and put you on the road to wealth.
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