Aerospace Could Send the Dow Flying


Stocks turned upward this afternoon as the U.S. finally shrugged off any lingering negative impact from the Japanese stock market's overnight plunge. By 2:45 p.m. EDT, the Dow Jones Industrials were up 115 points, continuing the run of triple-digit days we've seen recently as volatility perks up in both directions. The U.S. stock market has actually done a good job of ignoring international pressures recently, as it has managed to sustain its advances even as emerging-market stocks have produced substantial losses so far this year.

One area of strength lately has been the aerospace industry, where greatly improved profitability among major airlines has led to increased capital spending and greater interest in boosting efficiency and long-term investment. The obvious aerospace pick within the Dow is Boeing , which has the dual strengths of being one of two dominant commercial-aircraft manufacturers and having extensive contracts with U.S. and international defense organizations. Boeing is up 1.1% today, having upgraded its long-term prospects for the industry earlier this week. Now, the aircraft manufacturer sees aggregate demand for 35,000 new planes over the next 20 years, with total potential revenue for the company of $4.8 trillion. With new models like the Dreamliner, the 777X, and the fuel-efficient 737 MAX, Boeing hopes to capture more than its fair share of this huge market.

Boeing's impact ripples out to other major Dow components as well. United Technologies , up 1.6% today, has expanded its already substantial presence in the aerospace industry in recent years, with its acquisition of Goodrich marking the key event in its aim to become a major supplier of systems and components for the industry. Through its Pratt & Whitney subsidiary, United Tech already makes engines for commercial, military, and private-business aircraft, as well as the parts and technical support to ensure they work correctly. Goodrich added products like landing gear and engine housings to make United Tech's overall offerings more complete, and looking ahead, the company can count on high aircraft demand to drive its own revenue as well.

Finally, General Electric has a substantial aviation division with a focus on jet engines and related components. The division was the third-largest in terms of revenue for GE in 2012, behind only the GE Capital division and GE's power and water segment. GE Aviation hasn't grown so fast as focus areas like oil and gas, power and water, or energy management. But with substantial roles to play in the industry, GE should benefit from the rise of aerospace in the years to come.

Individual industries often get lost in the noise of the overall market. But the trends in aerospace all look good at the moment, promising success for companies that can capitalize on the massive opportunity there.

For GE, management's strategic bets in energy have paid off well. If you're a GE investor, you need to understand how these bets could drive this company to become the world's infrastructure leader. At the same time, you need to be aware of the threats to GE's portfolio. To help, we're offering comprehensive coverage for investors in a premium report on General Electric, in which our industrials analyst breaks down GE's multiple businesses. You'll find reasons to buy or sell GE today. To get started, click here now.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of General Electric. 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.

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