Aero Buys: Set to Soar?

11/19/2013 8:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Most of our profits came from stocks with $100 million-plus of daily volume. But that doesn't mean every thinly-traded name is a loser. In fact, here are two intriguing candidates that could "grow up" as more institutions buy in, observes Mike Cintolo, editor of Cabot Market Letter.

Experience has taught us that if you're going to buy thinly-traded stocks, you must be demanding.

First, you want a great story, focusing on companies that have something unique going for them right now, preferably something revolutionary, that's changing the way millions of people work or live.

Second, this story must be backed up by some great numbers—we like to see many quarters of rapid sales growth, and/or a couple of solid quarters and big earnings estimates going forward.

Third, you want a solid chart—not just a general uptrend, but also bullish volume clues, a sign that funds are buying. Also, it helps if the market has recently come under some pressure—if a thinner stock can hold up during choppy times, it's a good indication that current holders are sitting tight.

Below are two airline-related stocks that fill the bill:

Gogo (GOGO) is the company behind Internet access on airline flights. About 7,000 daily flights have the company's technology in North America, and it dominates the industry with about an 80% market share; more opportunities exist for Gogo overseas (though competition is greater, too).

The service is a hit with consumers and airlines, with studies showing that consumers favor flights that are Wi-Fi enabled over others. The firm's third-quarter results were terrific, with revenues of $85.4 million, up 48% from a year ago.

Gogo is still losing money, but cash flow is turning positive and the stock leapt out of a nice base this week following the quarterly report.

Spirit AeroSystems (SPR) is a dominant supplier of aerostructures (fuselages, wing systems, etc.) to both Boeing and Airbus—in fact, it makes 70% of the airframe content for the Boeing 737, and is the largest aerostructure provider to Boeing's newer 787.

After a few hiccups, due to execution issues, management has been shaken up (including a new CFO), and the third-quarter report was excellent.

With the aerospace boom in place, there's no reason SPR can't continue to prosper—earnings are expected to rise to $2.66 per share in 2014, the backlog is $38 billion (!) and the stock has been trending higher for a year and just popped above long-time resistance at $26.

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