One concern with industrials is that they are richly valued. Morningstar says of VIS “VIS currently is trading at 105% of its fair value, while the S&P 500 Index trades at 102% of its fair value. So investors should become comfortable with the valuation before investing.”
XAR, however, trades at a discount to ITA. The former sports a P/E ratio of 18.7 compared to 22.3 on ITA. Catalysts that could lead to further upside for XAR in 2014 include, renewed airline pricing power evidenced by higher ticket prices, and more fees paid per traveler, increased airline profitability, new aircraft program launches and continued demand for aircraft models and technology.
Additionally, XAR is positioned to remain durable as interest rates rise because industrials are among the best sectors in rising rate environments.
SPDR S&P Aerospace & Defense ETF
