Investors in defense stocks have had their faith and patience tested during the endless acts of Washington’s “Political Theater of the Absurd” this year — slashed Pentagon budgets, fiscal cliff fears and sequestration — but many of the biggest names have still rewarded shareholders’ trust handsomely.
Consider the second-quarter earnings of the federal government’s top defense/aerospace contractors, including Boeing (BA), United Technologies (UTX), Lockheed Martin (LMT), and Northrop Grumman (NOC). They managed to weather budget woes that shaved revenues to the bone, as well as make operational adjustments that preserved margins and beat Wall Street expectations.
Other companies are hard-pressed on every side, and their heavy Pentagon exposure seems to make them top-heavy and at a risk of capsizing — but relentless cost control, emerging opportunities and battleship balance sheets give them extra protection from the tempest.
The market has seen how well these companies have rolled with adversity — and it has made its own adjustments. With upcoming third-quarter earnings likely to spark or spook defense stocks, here are three defense stocks to buy, and one to sell.