One group that has been panned by many pundits this year is defense stocks.
There have been dire predictions for companies supplying products and services to the military and Homeland Security, as folks expect these defense stocks to be plagued by looming defense cuts and spending cutbacks across all levels of the government. And considering talks of sequestration, the debt ceiling and budget cuts are a regular part of the daily headlines, this argument would seem to make sense on the surface.
The only problem with the story is that it is not true.
I took a deeper look at this industry and ran 16 of the largest defense contractors through Portfolio Grader. Given the headlines and pundit predictions, I would have expected to find a bunch of hold- and sell-rated stocks.
Instead, I found just the opposite. Many defense stocks are doing fine in spite of gloomy predictions.
Only three defense stocks — CPI Aerostructures (CVU), Triumph Group (TGI) and AeroVironment (AVAV) — are currently rated sell. Nine of the stocks do fall all the way down to get the dreaded “F” or strong sell grade. And only Rockwell Collins (COL) gets a “C” and is a hold right now.
The remaining defense stocks that should be falling apart as a result of government cutbacks are either a buy or strong buy. Analyst and investor expectations have been so low for the group that even the largest contractors like Lockheed Martin (LMT), Northrup Grumman (NOC) and Raytheon (RTN) have caught Wall Street off-guard and are posting much better than expected results.
Plus, two stocks have earned the coveted “A” or strong buy ranking. Heico Corp. (HEI) designs, manufactures, and sells aerospace, defense and electronic related products and services in the U.S. and internationally. Any weakness in its defense business has been more than offset by sales to the commercial airline industry. HEI was upgraded back in August and remains a strong buy at its current price.
Elbit Systems (ESLT) is more of pure defense play and is also a highly ranked in our stock picking tool. The company makes unmanned aircraft, electronic warfare systems, electronic intelligence system and other command and control systems. These products are very much in-demand among today’s high-tech militaries, and business has been very good as a result.
Elbit blew away analyst estimates last quarter and estimates for the full year have risen sharply. Portfolio Grader spotted the strong and improving fundamentals back in August and upgraded the stock to an “A.” ESLT stock remains a strong buy at the current price.
The bottom line is that Wall Street loves to tell stories, but only some of them are true. Portfolio Grader can help you separate the fairy tales from reality.
Louis Navellier is the editor of Blue Chip Growth.