Cordant Technologies, based in Salt Lake City, manufactures rocket motors, "fasteners" (bolts), and turbine engine components for the aerospace industry. For the first half of 1999, its sales were $1.28 billion, up 7 percent on the same period for the previous year. Net income was $85.7 million, or $2.34 per share, up 16 percent. Cordant's gas turbine business was growing, but production cuts and inventory buildup at Boeing forecast a slowdown in the firm's revenues from other aerospace products. Other data on the firm are as follows:

Rolling 12-month eps to June 30, 1999 ..........$4.11

Book value per share, June 30, 1999 ...........$7.76

Rolling 12-month sales per share to ..........$67.20

June 30, 1999

Profit margin ..................... 7.4%

Price per share, September 30, 1999 ............ $32

Market capitalization of equity ............$1.17 billion

Analysts were forecasting earnings of $4.00 per share for the full 1999 year and $4.28 for 2000. Cordant's financial statements consolidate an 85 percent interest in Howmet International, another manufacturer of turbine engine components. Howmet reported net income of $65.3 million for the first half of 1999, up 33 percent, on sales of $742.4 million. Other data on Howmet are:

Rolling 12-month eps to June 30, 1999 .........$1.21

Book value per share, June 30, 1999 ..........$4.25

Rolling 12-month sales per share to ..........$14.28

June 30, 1999

Profit margin ..................8.7%

Price per share, September 30, 1999 .........$14

Market capitalization of equity ...........$1.40 billion

Analysts were forecasting earnings of $1.24 for 1999 and $1.36 for 2000.

Both firms were categorized by some analysts at the time as "neglected" or "ignored" stocks. Their claim was that the market was irrational not only in overpricing the new technology stocks, but also in underpricing the old, "blue-collar" industrial stocks. For reference, firms like Micosoft, Dell, Yahoo!, and AOL traded at multiples of over 50 times earnings at the time, whereas aerospace firms traded at 11 times earnings. Calculate price multiples for Cordant and Howmet. Do you see an arbitrage opportunity? What trading strategy do you recommend to exploit the opportunity? Would you call it a riskless arbitrage opportunity?