Bullish for Defense Stocks

Written by Jennifer Clark
Posted March 9, 2022

You probably don’t think too much about defense stocks. However, it might be worth considering, especially during market turmoil and when political tensions arise throughout the world right now. The defense industry can consist of producing modern weaponry like ships, bombers, fighter jets, and combat vehicles. It can also include companies that offer cybersecurity, information technology, analytics, robotics, and intelligence systems.

Defense companies' top customer is the U.S. government. They also can sell their products and services to foreign governments and law enforcement agencies to assist with protection for other countries. Without a doubt, the U.S. government has become a loyal customer to some of these defense companies — ensuring that there will always be enough money in the U.S. government budget for defense spending. This gives defense companies with contracts with the U.S. government steady revenue expectations.

In the next few years, the momentum for defense stocks is set to continue as the Biden administration’s first Pentagon budget remained unchanged from the previous year and previous administration. The Biden administration aims to focus on modernizing and research, which could increase spending in the upcoming years for defense contractors. Some thought the Biden administration would reduce spending for the defense budget, but as we’re seeing it, that is not the case at all.

Investing in defense stocks could go against your values, which would be one reason why you might not invest in the defense industry. Defense stocks are best suited for investors who are seeking steady growth and rising dividends instead of a massive increase in company valuation. Here are three defense stocks you could consider…

Lockheed Martin (NYSE: LMT)

Lockheed Martin is a security and aerospace company that operates through four segments. Those are aeronautics, missiles and fire control, rotary and mission systems, and space. The company is involved in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide. 

Lockheed Martin was founded in 1912 and is headquartered in Bethesda, Maryland. The company has become a crucial component of U.S. national interest which makes this company good for the short and long term. LMT ended its third quarter on September 26, 2021, with $134.8 billion. The product cycles for LMT are unique because they are usually government-committed and provide long-term resilience to Lockheed’s business, which usually results in a predictable return on capital.

LMT does greatly depend on U.S. military funding, which could become a risk if for some reason there is no longer any commitment to Lockheed. An example of this could be if a new administration comes into power that wants to reduce the federal government’s spending on defense. However, right now Lockheed could benefit from the Ukraine conflict and the $770 billion defense bill that was recently passed.

Raytheon Technologies (NYSE: RTX)

Raytheon Technologies is an aerospace and defense company. It offers its systems and services for commercial, military, and government customers worldwide. It operates through four segments: Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space, and Raytheon Missiles & Defense. 

Raytheon Technologies is headquartered in Waltham, Massachusetts. The company had a strong fourth quarter for the fiscal year 2021. The company’s Collins Aerospace and Pratt & Whitney segments provided strong results for 2021. Raytheon reported its Collins segment generated 13% year-over-year growth in organic sales and its profit grew 427% year over year. Again, Raytheon is another company that has been budgeted into the U.S. government’s budget for defense, which gives Raytheon long-term stability and a reliable source of revenue even if the economy is slow. RTX could be a good defense stock option for a long-term investment.

Northrop Grumman (NYSE: NOC)

Northrop Grumman is an aerospace and defense company. It’s one of the world’s largest weapons manufacturers and military technology providers. The company was founded in 1939 and is headquartered in Falls Church, Virginia.

NOC is advancing technology in Space. Recently, it won a $341 million Space Force contract to develop a deep-space tracking radar. Winning this contract will set the company for future growth in an industry that’s been getting a lot of attention in the past few years due to interest in advancing technologies to further discover space. 

The radar system that is being developed by NOC will be known as Deep-Space Advanced Radar Capability (DARC). It will be located in the Indo-Pacific region, and the company plans to complete a prototype by September 2025. Northrop’s latest earnings report on January 27, 2022, indicated that the company beat earnings per share estimates by $0.04 — with EPS coming in at $6.00. 

These three defense stocks are just a glimpse at this potentially prosperous industry — an industry that’s expected to be resilient in the decades ahead. There will always be room to budget for defense and aerospace.

Until next time,

Jennifer Clark
Pro Trader Today
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