Tuesday April 13, 2010
by Genia Turanova, contributing editor Leeb's Income Performance Report
Some current developments are one-time events. But others are part of a longer-term trend.
L-3 Communications Holdings (NYSE:
LLL) is a leader in a fast-growth niche of homeland security and defense: Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance, often abbreviated C4ISR or ISR.
We now recommend an L-3 convertible security; convertibles give you exposure to the upside potential of the common stock, with less volatility and often higher income.
Among the company's broad base of specialized products are airport body scanners of the type that can spot most explosive devices, such as the one in the Christmas Day bombing attempt. Another area of L-3 expertise is cyber security, a rapidly growing international concern.
In 2009, an ISR surge fueled single-digit sales growth for L-3, with revenues likely exceeding $15.5 billion. Earnings per share probably reached $7.50 or more, and should hit $8 this year, for a low price/earnings multiple of 11-12.
Our recommended convertible notes due 2035 carry credit ratings below investment grade because of L-3's relatively high debt load. But management has been trimming debt and eliminating near-term maturities. And the company's revenues and profits are considered highly reliable, despite heavy dependence on a single source, the U.S. government.
We see L-3 Com
munications as one of the best companies in the robust defense sector. Its 3% 2035 convertible is a low-risk way to invest.
This security can be converted into 9.9862 shares of L-3 stock. Trading at an attractive 19 percent premium to its conversion value, the convertible can't be called until February 2011. And investors can sell the convert back to the company on Feb. 1, 2011, at face value.
A previous recommendation that benefits from providing solutions to global threats is the Millipore convertible bond. It also has a "put" safety feature: It can be sold back to the company at face value until Dec. 1, 2011.
Learn more about this financial newsletter at Stephen Leeb's Income Performance Report.
