Why General Dynamics Is Poised to Outperform

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, defense contractor General Dynamics (NYSE: GD  ) has earned a respected four-star ranking.

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

General Dynamics facts

Headquarters (founded)

Falls Church, Va. (1899)

Market Cap

$24.3 billion

Industry

Aerospace and defense

Trailing-12-Month Revenue

$32.6 billion

Management

Chairman/CEO Jay Johnson (retiring on December 31)
President/COO Phebe Novakovic (will succeed Johnson)

Return on Equity (average, past 3 years)

18.9%

Cash / Debt

$2.9 billion

Dividend Yield

3%

Competitors

Boeing (NYSE: BA  )
Lockheed Martin (NYSE: LMT  )
Textron (NYSE: TXT  )

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 94% of the 1,362 members who have rated General Dynamics believe the stock will outperform the S&P 500 going forward.

Just last week, one of those Fools, TMFDeej, succinctly summed up the bull case for our community:

Cheap with a catalyst. That the sort of stock that one of my favorite investors, Mario Gabelli, looks for when he invests his clients' money. ...

If one applies a 14 earnings multiple to the Gulfstream division, it would be worth $30 per General Dynamics share, which current trades at $67.

This means that the defense business is being priced like it's a complete mess, which it's not. Some analysts actually believe that its products are so good that it may be able to grow even in the face of serious government cuts in defense spending.

OK, so the company appears cheap, but what's the catalyst that I was talking about? Well, for one General Dynamics has a new CEO scheduled to start at the beginning of 2013. There's lots of levers that this new CEO, Phebe Novakovic, can use to unlock value in the company, including increasing its buybacks, raising the dividend (which I personally prefer to buybacks) or the icing on the cake which General Dynamics has denied interest in doing but may reconsider -- a spin-off of its Gulfstream division.

If you want market-thumping returns, you need to put together the best portfolio you can. Of course, despite a strong four-star rating, General Dynamics may not be your top choice.

If that's the case, we've compiled a special free report for investors called "The 3 Dow Stocks Dividend Investors Need," which uncovers several other juicy income opportunities. The report is 100% free, but it won't be around forever, so click here to access it now.

Want to see how well (or not so well) the stocks in this series are performing? Follow the TrackPoisedTo CAPS account.


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