Despite enduring myriad business and political headwinds in 2013, defense stocks not only survived, but thrived — and investors are the better for it. Defense stocks have gained an average of more than 50% over the past year, and most are trading at 52-week highs.
Deep defense cuts may have driven down revenue year-over-year for the Pentagon’s top contractors, while fiscal cliff fears and sequestration — the $85 billion in automatic, across-the-board federal spending cuts that kicked in last March — looked certain to add insult to injury.
But give the top defense stocks a lot of well-earned credit: they boosted margins by cutting costs aggressively. Many companies beefed up international sales and focused on growing high-growth businesses like commercial aircraft and components, which are not dependent on federal government spending.
And here’s more good news for defense stocks: the $1.1 trillion omnibus spending measure President Obama signed into law last Friday gives the Pentagon nearly $93 billion to buy weapons and another $63 billion for research and development.
Obviously the defense sector will continue to face headwinds as Pentagon spending wanes, but the best defense stocks will continue to take good care of their shareholders for years to come. Here are four defense stocks that could pay off big in 2014.