It’s a slightly contrived title, but most European defence and aerospace companies provide aircraft components and technology. Most are now trading at 20 year price highs, but that’s not the point I want to make.
What investors need to understand is that the current relationship between the share price and the longer term expected return (year 2/3) which can be seen on the Apollo Margin of safety indicator (please ask) is now equal to any previous peak since 2004. We can say with certainty that for the time being the risk and reward of holding the shares are skewed towards risk.
The chart below is the Apollo Value Indicator score which relates to share price within the Margin of Safety. As you can see, the share price recently reached 100% or PutZERO, meaning that the risk of selling the stock is currently ZERO in the case of Dassault Aviation. This example is extreme but is equally applicable to other companies within the European sector and should be noted.
Knowing when to buy a stock is one thing but understanding the risk of loss is another skill altogether. Those who have owned stocks in this sector for many years are seeing returns that they could only have dreamed of on any reasonable time horizon. Those who got on board to ride the momentum should remind themselves it was always just a ride and it’s time to jump off.