There are no safe havens in the stock market. Every stock carries risk. But some less than others. This column features stocks that have shown one or more of the following characteristics: less volatility, better earnings, larger market caps, safe and increasing dividends. In these times of turmoil, our goal is to show readers better opportunities for investing with fewer risks.

September 23, 2008 - General Dynamics (GD-NYSE) provides business aviation; combat vehicles, weapons systems, and munitions; shipbuilding design and construction; and information systems, technologies, and services. The company operates through four segments: Aerospace, Combat Systems, Marine Systems, and Information Systems and Technology.

The Combat Systems segment offers wheeled armored combat and tactical vehicles; tracked main battle tanks and infantry fighting vehicles; guns and ammunition-handling systems; ammunition and ordnance; mobile bridge systems; passive, active, and reactive armor; chemical, biological, and explosive detection systems; electronic counter-measures; and composite products primarily for the United States military and its allies.

The Marine Systems segment designs, builds, and supports submarines and surface ships for the U.S. Navy and commercial ships. It offers products, including nuclear-powered submarines; surface combatants; auxiliary and combat-logistics ships; commercial ships; engineering design support; and overhaul, repair, and support services.

The Information Systems and Technology segment designs, manufactures, and delivers communications network systems, ruggedized computers, command-and-control systems, and operational hardware; wireline and wireless voice, video, and data networks; and mission simulation and training services. In addition, the company provides signals and information collection, processing, and distribution systems; special-purpose computing; data mining and fusion; special-mission satellites and payloads; and information operations services. It operates in North America, Europe, the Middle East, South America, Africa, and Asia/Pacific. General Dynamics Corporation was founded in1899 and is based in Falls Church, Virginia.

We're talkin' diversity here. Revenues and earnings in 2007 for the divisions: Marine Systems: 18% of sales, 14% of profits; Combat Systems: 29% of sales, 29% of profits; Information Systems & Technology: 35% of revenues, 32% of earnings; Aerospace: 18% of sales, 25% of profits. The company isn't dependent on any one group for its success though Information Systems and Technology is clearly stronger than the rest.

General Dynamics is growing and not just internally. It plans to acquire a privately held Swiss aircraft maintenance company, Jet Aviation, for about $2.2 billion, subject to governmental approvals, putting the final touches on the deal by the end of the year. In 2008, Jet Aviation should finish with sales of $1.4 billion. The company expects revenues to increase to $1.5 billion next year and earnings of about $230 million. Jet Aviation has services internationally which include repair, overhaul and general maintenance for commercial and private jets. GD already has domestic operations doing the same services. The company believes the purchase will be positive to earnings in 2009.

Earnings are good here. That explains why the stock has steadily climbed from $25 in 2003 to a recent all-time high of $95.13 (prices split adjusted for a 2 for 1 split in 2006). For the past 5 years, earnings per share increased,on average, by 19.62% annually. For the next 5, analysts' (18 of them) consensus is a growth rate of 10.4% a year, on average. For this quarter (due out on October 22), analysts have an average estimate of $1.51 compared to $1.34 last year in the same quarter. Next quarter, they see $1.61 vs $1.42. For the current year, expect EPS of $6.12, then $6.70 next year.

One aspect that makes this company of interest to conservative investors its GD's cash flow. It's big, well in excess of operating needs. That means an acquistion like Jet Aviation can be handled without additional debt. Last year, cash flow was so strong that it only took 37% of it to pay for all capital expenditures and the dividend ($1.10...this year it was raised to $1.34, next year it will be $1.40). For many years, those two expenditures ranged between 35% and 40%. The company raised the dividend every year since 1997 and has an active stock repurchase program with plenty left over to buy multi-billion companies.

More numbers: P/E (price to earnings ratio) is 14 while Price to Sales is 1.14. Price to Book is 2.69. For the last 12 months, Profit Margin was 8.16% with Operating Margin at 12.05%. Return on Equity was 20.49%.
Revenues for 2007 were $27.24 billion. The Current Ratio is 1.43 (current assets divided by current liabilities). There are 397.26 million shares outstanding. Institutions own 80% of those. It only takes 21% of earnings to make the dividend payment.

General Dynamics has a good mix of products and services, delivers solid earnings, and a very strong balance sheet. The one area of concern is military contracts. If a new administration were to cut back on defense spending, GD would definitely feel it. With the stock getting near its 52 week low, it's a good time for investors to look closer.

Company Web site: www.generaldynamics.com

- Ted Allrich