It’s no secret that 2011 presented major headwinds for the defense sector, but 2011 is long gone. Defense stocks have figured out how to thrive amid a number of budget cuts, and proposed increases in military spending for 2016 have put a renewed bounce in the sector’s step.
But what defense stocks should investors target right now? Well, while a rising tide lifts all boats, the best stocks to buy right now will be those with a track record of solid earnings, promising growth estimates and prospective contracts.
So, with that in mind, here’s a look at three defense stocks to buy in 2015.
Defense Stocks to Buy: Northrop Grumman Corporation (NOC)
Northrop Grumman Corporation (NYSE:NOC) is a global aerospace and defense technology company whose unique products generate steady contracts with the Department of Defense and American allies.
Northrop recently reported fiscal 2014 Q4 earnings that grew 6% to $506 million. On a per-share basis, NOC earned $2.26 to beat Wall Street estimates by a penny, and revenues of $6.1 billion came in over a bar set at $6.1 billion.
2015 guidance surprised to the upside, too. NOC is projecting EPS between $9.20 and $9.50, while the consensus had forecast $9.11 per share.
Investors would be pleased if the Street was similarly short on future growth forecasts — after what should be a slightly down 2015, earnings are expected to rebound by double digits next year.
Like others in its industry, Northrop Grumman Corporation has set its sights on international markets to make up for the decline in American defense spending. Still, with continuing global threats against the U.S., NOC stock should continue to see growth well into the future.
Defense Stocks to Buy: Boeing Co (BA)
Boeing Co (NYSE:BA) is the world’s largest aerospace company and a leading manufacturer of commercial jetliners and military aircraft. After revealing fiscal 2014 Q4 earnings, shareholders of BA stock rejoiced the 19% increase to quarterly profits, which was helped in large part by a growing demand for commercial aircraft. Fourth-quarter earnings rose to $2.31 per share, up from $1.88 per share in the year-ago period.
Future plans for high-tech aircraft and Boeing’s continued efforts in global expansion should spark more growth in BA stock. Boeing CEO Jim McNerney was confident BA would continue to take off in fiscal 2015.
“For 2015, we will continue to build on our commercial airplanes market leadership, strengthening and repositioning our defense, space and security business and working to better meet the needs of our customers by focusing on improving productivity, executing to development plans and delivering our industry-leading portfolio of innovative aerospace products and services.”
Yes, funding for Boeing’s F/A-18 and EA-18G jets was actually omitted in the Navy’s 2016 budget plan, but Boeing plans on lobbying in hopes of getting more orders, and McNerney said he expects continued demand for his fighters.
Meanwhile, a wealth of new contracts for its commercial airplanes makes BA stock look attractive, even outside the uncertainty surrounding this budget issue.
Defense Stocks to Buy: Raytheon Company (RTN)
Raytheon Company (NYSE:RTN) is a well-known American defense contractor and industrial corporation. While Raytheon is seen as a leader in missile manufacturing — among other highly innovative products — investors didn’t see much in RTN’s fourth-quarter earnings or its lowered 2015 guidance.
Still, RTN stock, which trades at just 15 times earnings, could prove to be a value buy as along as national security risks are on the rise. Raytheon has long-term potential upside as the country continues to experience increasingly complex technological warfare. According to Raytheon CEO Thomas Kennedy:
“Raytheon finished 2014 with strong fourth quarter operating performance, driven by continued global demand for our advanced solutions and solid execution from the Raytheon team. As we look to the year ahead, we will continue our focus on investing in innovative technologies, building on our capabilities to position the company for the future, and providing ongoing strong returns for shareholders.”
Like NOC, Raytheon is expecting a double-digit bounce-back in earnings growth next year after a forecast decline in 2015. That should be helped in part by its international business, which now drives 30% of the company’s revenue and, according to Kennedy, could make up as much as 40% of sales in the future.
As of this writing, Anna Rider did not hold a position in any of the aforementioned securities.
