4-Star Stocks Poised to Pop: L-3 Communications

Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, military contractor L-3 Communications Holdings (NYSE: LLL  ) has earned a respected four-star ranking.

With that in mind, let's take a closer look at L-3's business and see what CAPS investors are saying about the stock right now.

L-3 facts

Headquarters (founded) New York (1997)
Market Cap $7.96 billion
Industry Aerospace and defense
Trailing-12-Month Revenue $15.63 billion
Management CEO Michael Strianese (since 2006)
CFO Ralph D'Ambrosio (since 2007)
Return on Equity (average, past 3 years) 14.5%
Cash/Debt $650 million / $4.14 billion
Dividend Yield 2.3%
Competitors Honeywell International (NYSE: HON  )
Lockheed Martin (NYSE: LMT  )
Raytheon (NYSE: RTN  )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 97% of the 818 members who have rated L-3 believe the stock will outperform the S&P 500 going forward. These bulls include TMF42 and shaileshnita.

Just three weeks ago, TMF42 tapped L-3 as a great way to play defense:

L-3 has a diversified project portfolio that is positioned in the right areas to avoid being crushed by defense spending cutbacks (fears of which are overblown). Tack on a valuation that is cheap in absolute terms, and very cheap on a historical basis and we have an outperformer.

L-3 seems to be cheap on a relative basis, as well. After a year of industry-lagging price performance, the stock is currently available at forward P/E (8.5) discount to rivals Honeywell (14.1), Lockheed (10.3), and Raytheon (9.5), as well as other defense plays like Boeing (NYSE: BA  ) (13.8) and General Dynamics (NYSE: GD  ) (9.5).

CAPS member shaileshnita elaborates on the bull case:

L-3 Communications has a very good valuation. ... It pays a dividend yield of 2.2% with a payout ratio of 20%. It has a small debt. With this kind of valuation one would expect the stock price to appreciate but that isn't the case for the past two years. Since this American company belongs to defense industry, I believe the depressed stock price reflect the investor's fear of lower demands for defense items. I don't see a real justification for that fear.

What do you think about L-3, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. General Dynamics is a Motley Fool Inside Value pick. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool's disclosure policy always gets a perfect score.


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