File
Boeing's F/A-18 Super Hornet is a terrific fighter jet -- but it's not good enough to save Boeing stock. Image source: Wikimedia Commons.

If you are considering making an investment in Boeing (NYSE:BA) stock, stop.

Don't do it.

And now... I'll tell you why.

Write what you know, but buy what is cheap
Here at The Motley Fool, I write about aerospace and defense stocks pretty much every day of the week. I also invest in a lot of companies -- and I'm not half bad at it. According to the up-to-date statistics on file at Motley Fool CAPS, I rank in the top 99.5% of investors we track on the website.

But I'm often asked by readers: If you write so much about defense stocks, why don't you own any?

And the answer is simple: I like reading about defense companies. I like writing about defense companies. But I have absolutely no interest in losing money by investing in defense stocks. And at the prices Mr. Market is charging for defense stocks today, I think these stocks are virtually guaranteed to lose you money over time.

Just one thing
The truth of the matter is that, over the years, I have owned defense stocks -- when the price was right. But here's the thing to remember when you are considering an investment in a defense stock: There is a big difference between a great company, and a great stock. That difference: valuation.

I don't care how good a company is, how bright its prospects, or how big of a Pentagon defense contract it just won. If the price of the stock isn't right, you're going to lose money on it.

Company

Price-to-Earnings Ratio

Price-to-Sales Ratio

Five-Year Projected Growth Rate

Boeing 

23.8

1.1

10.4%

General Dynamics
(NYSE:GD) 

17.0

1.3

7.8%

Lockheed Martin
(NYSE:LMT) 

17.5

1.2

8.9%

Northrop Grumman
(NYSE:NOC) 

13.8

1.1

7.3%

All data courtesy of free financial screening website finviz.com. See up-to-date numbers here.

Boeing
The fact is, I have little doubt that Boeing is superb plane builder -- of commercial and of military jets alike. With its labor union problems basically solved for the next decade, Boeing should earn beaucoup bucks. But even Boeing will have a hard time earning enough money to justify the 24-times-earnings valuation on its stock. Meanwhile, Boeing's price-to-sales ratio, although enticingly close to the magic one-times-sales number appropriate for valuing defense stocks, isn't quite cheap enough to ring the alarm to buy.

Images
Boeing's International Association of Machinists and Aerospace Workers labor union has agreed not to strike for the next 10 years, while building the 777x airliner. Image source: Boeing.

General Dynamics
General Dynamics is without question America's leading manufacturer of armored vehicles -- from tanks to armored personnel carriers to MRAPs -- and it holds a powerful position in the naval shipbuilding industry as well. General D just announced a multibillion-dollar deal to sell Saudi Arabia literally thousands of new light armored vehicles for its army, a deal that will keep growing revenues for years to come. But even with these sales factored in, analysts see single-digit growth in store for the company -- not fast enough to buy.

Stryker
General Dynamics' Stryker APC. Source: General Dynamics Land Systems.

Lockheed Martin
Maker of the nation's last manned fighter jet, and holder of a contract worth upwards of $1 trillion dollars to build the F-35 Joint Strike Fighter, Lockheed Martin is the nation's largest pure-play defense contractor. That's a fact that should remain true for decades to come. Lockheed also holds half the contracts for producing the Navy's new Littoral Combat Ship, a good chance of winning work on the new Small Surface Combatant, and a 50% share of the nation's leading space launch company. But at 1.2 times sales, I think the stock has a lot of optimism priced into it already.

F
Lockheed Martin's F-35 stealth fighter jet had better be the best fighter jet America makes -- because soon it will be the only fighter jet America makes. Image source: Lockheed Martin.

Similarly, I have very high hopes for Northrop Grumman -- as a company. Its significant investments in and years of experience with unmanned aerial vehicles make a force to reckon with in drones, and Northrop Grumman could dominate the drone industry for years to come. But the stock price isn't quite right, and the company's slowest-in-class projected growth rate isn't encouraging, either.

G
But Northrop Grumman has a robo-helo. How cool is that? Source: Northrop Grumman.

Your Foolish takeaway
I like all of these companies for all of these reasons. But the reason I am ranked in the top one-half of one percent of investors on Motley Fool CAPS is because I've trained myself to look past the headlines -- and focus on valuation.

There are very few defense stocks I'd even consider owning at today's prices. FLIR Systems (NASDAQ:FLIR) is one. Priced at:

  • 33 times earnings
  • But less than 17 times free cash flow
  • Paying a modest 1.1% dividend yield
  • And growing profits at 15% annually

FLIR Systems costs very close to fair valuation, in my opinion. The company's smart investment in Traficon in 2012 expanded its exposure to the civilian market for infrared traffic control, lessening reliance on defense contracts. Last year's savvy purchase of DigitalOptics and its 200 optical patents strengthened FLIR's position even further.

If there's one defense stock out there still cheap enough to own -- one that I might buy myself -- it's this one.

Rich Smith owns shares of Apple. The Motley Fool owns shares of General Dynamics, Lockheed Martin, and Northrop Grumman. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.