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4 Defense Stocks That Could Pay Off Big in 2014

With no sequestration, flat Pentagon spending doesn’t look so bad

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Northrop Grumman (NOC)

defense-stocks-NOC-stockNorthrop Grumman’s (NOC) aggressive cost-cutting efforts should go a long way toward helping it turn in a solid fourth-quarter earnings report on Jan. 30. NOC blew away analysts’ estimates when it last reported earnings on Oct. 23, with earnings of $2.14 per share, beating the Street by 32 cents; full-year earnings are expected to be $8.15 per share.

The Pentagon may be less enamored with big drones these days, but Northrop Grumman and its Congressional supporters have blocked Air Force efforts to retire the fleet of Global Hawks. In fact, the defense bill adds $10 million to study whether sensors from the legendary U2 spy plane could be fitted onto the massive unmanned aerial vehicle.

NOC also benefits from lawmakers’ commitment to the F-35 because it produces the AN/APG-81 Radar for the fighter jet; the company made $1 billion in subcontracting revenue on that program alone in 2012.

NOC stock has a lofty PEG ratio of 3.8, suggesting that the stock is overvalued. It trades at 14 times forward earnings and has a current dividend yield of 2.1%. Still, expect the cost-cutting to go a long way in 2014.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities. 

Article printed from InvestorPlace Media,

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