4 Titans of Trouble – Defense Stocks NOC, AVAV, RTN, BA

The Ukraine, Boko Haram in West Africa, ISIS in the Middle East, Chinese expansion, Russian aggression, Yemen.

Defense_Stocks_Jets_Airforce_185.jpgIf you’re invested in the defense sector, this is all actually good news. Companies like Raytheon Company (NYSE:RTN), Northrop Grumman Corporation (NYSE:NOC), Boeing Co (NYSE:BA) and AeroVironment, Inc. (NASDAQ:AVAV) are looking at a bullish 2015.

These four firms averaged about a 7.6% gain in the past 12 months, with Northrop Grumman and Raytheon bringing in the big returns. But that’s where buying a bit of each is the best strategy moving forward. Laggards Boeing and AeroVironment are poised for big turnarounds in coming quarters and they are on sale now.

Just the fight we’re engaged in with ISIS is costing — by the Pentagon’s own estimates — about $7.5 million a day. And since June 2014, we’re getting close to a $1 billion tag just for those operations.

Granted, we’re not looking at some major conflict like Iraq or Afghanistan at this point. But these small conflicts mean the U.S. is engaged in a different way and certain companies are set to prosper from the steady flow of conflict rather than the tsunami of all out war.

It means that companies that supply weapons, munitions and equipment that is deployed everywhere and consumed regularly will be the big winners.

For example, unmanned aerial vehicles (UAVs), aka drones, are a huge factor in many of these conflicts. From maintaining C5ISR (Command, Control, Communications, Computers, Combat Systems, Intelligence, Surveillance and Reconnaissance) to weaponizing UAVs to go after remote targets without using boots on the ground, the demand in this sector is already huge but it’s going to get much bigger.

One of the great advantages with UAVs is that they’re controlled remotely, so soldiers aren’t in harm’s way, and they’re much more efficient to operate than traditional aircraft and helicopters.

The two to focus on in this sector are NOC and AVAV. Northrop Grumman builds the Global Hawk, one of the most prevalent UAVs in the skies around the world today. The Global Hawk is a C5ISR drone that sits up to 50,000 feet in the air and surveys places of interest with various cameras or payloads.

This kind of system is far more effective than older satellite information, and it’s far more valuable in real time situations, say when you’re tracking a convoy or monitoring a conflict area.

AVAV is a specialist in small UAVs for tactical teams on the front lines or behind enemy lines. UAVswere used extensively in Iraq by platoons that needed to check the road for improvised explosive devices (IEDs) before traveling down them or scoping out a small town before entering it.

In Afghanistan, special forces teams used UAVs in the difficult mountainous terrain to look for bad guys. AVAV’s hand-launched UAVs were very popular. And as the trend towards drones continues, this will be a big boon for AVAV, since it’s a small player in the sector. And this division may be quite a takeover play for some of the bigger players.

Raytheon is a major defense tech player, but its missile systems and munitions are going to be big sellers. Israel relies on the Patriot and newer Iron Dome missile defense systems. And Raytheon’s Tomahawk long-range large payload missiles are on every fleet the U.S. deploys. Raytheon also sells the shoulder-launched Stinger missile system, which is the AK-47 of missile systems; they’re found in virtually every conflict on every side in the conflict.

Boeing is all over the place, but when it comes right down to it, the bread and butter is defense. Boeing sells a lot commercial aircraft to be sure, but the reality is BA is too big to fail as a defense company, for good or bad.

In this case, it’s to the good. Boeing is very good at some things, and one of them is building things that fly. BA has significant missile systems as well as UAVs, including helicopters, which are the next big thing in the UAV sector. Also, Boeing’s Phantom Ray is a unmanned combat vehicle that is on the leading edge of UAV technology.

What’s more, there’s no modern military that is worth its salt that can’t provide air cover. And once the UAVs have done their jobs, many times, especially with soldiers in the field, air support is crucial. And BA will always be part of that air cover.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


Article printed from InvestorPlace Media, https://investorplace.com/2015/01/4-titans-trouble-defense-stocks-noc-avav-rtn-ba/.

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