Raytheon's Stock Is Worth Owning

The next selection for the Inflation-Protected Income Growth Portfolio is defense contracting giant Raytheon (NYSE: RTN ) . Although it's up against a potential loss of revenue due to the anticipated defense spending sequestrations, the reality is that the cuts, if they happen, will really just slow the rate of spending growth. Nevertheless, the threat of defense spending cuts reduced the company's forecast, thus knocking down its stock in recent weeks. That drop in stock price brought the shares down into a range where the iPIG portfolio is willing to buy.

Reason to believe the growth can continue: With a payout ratio of 35%, Raytheon retains nearly two-thirds of its earnings to invest for future growth. That fairly low payout ratio also gives it the flexibility to maintain its payment during the potential sequestration and/or if that anticipated longer-term growth doesn't materialize as quickly as hoped. Valuation: By a discounted cash flow analysis that takes into account Raytheon's recently lowered guidance, it looks to be worth around $18.8 billion. That makes its market cap of $17.6 billion seem reasonable.

Source: Motley Fool

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