3 Stock Picks: BA, UBS, SWHC

Boeing (BA) shares lost altitude Tuesday after the company announced a significant delay on the first flight of its new 787 Dreamliner aircraft, only a week after management at the Paris Air Show said it was ready to fly.

Boeing said it needed to reinforce an area within the side-of-body section of the aircraft to meet safety requirements for the much-anticipated new aircraft's debut.

"First flight and first delivery will be rescheduled following the final determination of the required modification and testing plan," the company said. "It will be several weeks before the new schedule is available."

Paul Nesbit, head of JSA Research, an aerospace consulting firm, says this was at least the third significant delay, including a strike, to impede the 787's progress.

"They've had their troubles," he says. "I think this is a great surprise. This information overwhelms anything else."

There are about 865 Dreamliners on order, nearly three years worth of production. While the delay likely won't cause cancellations, analyst Alex Hamilton of Jesup & Lamont says the order cycle has hit bottom for aircraft.

"We believe the appropriate question is now how long we bounce along the bottom and how well do the backlogs/deliveries hold up," he wrote Monday, adding that once the 787 goes into production, commercial aerospace will have few significant shifts to anticipate.

Last week, a Congressional committee approved $369 million in funding for 12 more F-22 fighters over the objections of Defense Secretary Robert Gates, and Boeing has one-third of the production for that aircraft.

Bottom Line: Buy
The Dreamliner will take flight eventually, and this dip may be an opportunity for a discounted ticket on a ride back to growth.

A report in the New York Times that said the Justice Department may drop a case that would have forced Swiss Bank UBS (UBS) to divulge the names of about 52,000 American clients overjoyed investors Tuesday morning.

Should a settlement between the Justice Department and the Zurich-based bank go through, it could signal that the U.S. government's efforts to overturn laws on banking confidentiality are starting to fade. American depositary shares of the No. 2 Swiss bank behind Credit Suisse (CS) rose more than 4% in midday trading.

The Justice Department sued UBS in February after the bank had reached a $780 million settlement over accusations it had defrauded the Internal Revenue Service by helping wealthy Americans avoid taxes.

Peter Thorne, an analyst with Helvea, an independent Swiss brokerage, says that investors need to keep in mind that the removal of the legal overhang is less important than the fundamentals of UBS's business.

"It should have been a nonissue and this just makes sure it is," he says of the legal maneuvering by the U.S., which has pushed for an end to banking secrecy laws as it pursues sources of terrorist funding. "It was never going to happen."

Thorne says the boost to UBS's shares may only be temporary as the bank has indicated that it may be having problems with its loan book, and with losing clients in its once-lucrative private-banking business. Although, he says, details remain scant.

UBS's investment-banking division has thus far effectively hedged itself against the current crisis. Helping matters is the fact that its mainly Swiss retail banking clientele typically aren't exposed to subprime mortgages or large amounts of unsecured personal credit.

"Given recent history, though, people fear the worst," he says.

Bottom Line: Sell
As investors' attentions return to the company's fundamentals, shares could lose some of these recent gains. Now could prove to be a profitable exit point for investors.

Shareholders of Smith & Wesson Holding Company (SWHC) pulled the trigger on a sizable selloff Tuesday despite a fiscal fourth-quarter earnings report that handily beat analysts' estimates. The gun maker's stock fell more than 8% in midday trading after the company said order backlogs for the fiscal first quarter are expected to drop from previous quarters.

After the market closed Monday, the Springfield, Mass.-headquartered company reported fiscal fourth-quarter earnings of 14 cents a share, beating Street estimates and almost doubling the eight cents a share it reported for the year-ago period. Analysts on average expected earnings of 12 cents a share.

CEO Mike Golden said on a Monday evening conference call that demand remained high. Nevertheless, the company did see a drop-off on orders for the upcoming quarter.

The announcement sparked concerns among investors that demand for guns, which has skyrocketed over the last year amid fears that the Obama administration would crack down on gun sales, is starting to abate. Recent reports also indicate that greater government restrictions won't be coming anytime soon, thus removing a sense of urgency for consumers to buy guns right away.

Wedbush Morgan analyst Rommel Dionisio wrote Tuesday that Obama's election has been good for the gun industry, with an average 30% growth in sales since the arrival of a Democrat in the White House triggered concerns of tighter gun control laws. However, the analyst says his longer-term outlook for the firearms industry remains cautious, noting that current sales will most likely not be sustainable given waning concerns about tighter government regulation.

Adding fuel to the fire, is a recent Barron's report that the Federal Bureau of Investigation's monthly tally of gun dealers' instant background checks is receding. In November, those checks were up 42% from the previous year, but were up only 15% in May.

Bottom Line: Hold
This stock could see another spike if regulatory concerns rise again, and its solid sales to law enforcement are a company strength.