Don’t ever doubt that defense is a growth industry. You just have to know which way the money is trending.
There’s are reality to defense spending that few outside the Beltway ever hear about.
It’s the fact that no matter how bad things are economically for the nation, how peaceful the world is or how much (or little) we want to be the world’s policeman, defense spending will remain significant.
And it’s not to make the country safer — it’s about jobs.
You see, the big defense and aerospace companies employ a lot of people across the nation. Each one is geographically diversified somewhere different from its competitors purposefully.
When there’s a cry to cut defense spending, the lobbyists from the defense industry head to Capitol Hill to remind the politicians that if they cut a particular program, it means the loss of a certain number of jobs in their districts (Congressmen) or states (Senators). The companies will make sure it lets those people know who threw them out of work.
And at this point, 60 years after the beginning of the Cold War arms build-up, the results are baked in.
Even the 2015 budget that passed before the new Congress was seated came in slightly less than it was in 2014 because of sequestration threats if the budget doesn’t hit specific targets. But if you read the details, you see weapons systems — some the military didn’t even want that were pushed by Congress — made it through and the cuts were to soldiers pay and benefits.
Whatever that says about the tail wagging the dog, the point is, defense companies are in no way threatened and neither are their stocks.
On the contrary, big defense stocks are generally very good long-term investments with decent dividends. Mid-size firms that are focused in a few sectors have good growth prospects. And smaller, tightly focused defense firms offer leveraged opportunities if they’re bought out or land major deals.
Right now, the trends are automation and increased technology in the battle space. Plus, increased mobility and flexibility.
Here we’ll look at one defense stock to buy from each of these sectors:
General Dynamics Corporation (GD)
General Dynamics Corporation (GD) is the A-rated Portfolio Grader big defense stock. GD has it all when it comes to systems and sectors for the 21st-century military.
On flexible front, GD owns Gulfstream, which is not only the plane of the 1%-ers but also of the top brass and government officials that regularly need to move in and out of places discreetly. Flying smaller planes lowers operating costs — the kind of place you cut budgets.
One the grand scale, General Dynamics runs crucial shipyards and submarine works. The Navy doesn’t sail without GD. Its land systems include the Abrams tank and Stryker combat vehicle; global best-sellers.
GD stock is up 45% in the past year and kicks off a decent 1.8% dividend. Lock General Dynamics away.
Textron Inc. (TXT)
In the mid-sized range, Textron Inc. (TXT) is the one to watch. It’s a pioneer of the diversified business model, having companies under its roof from power tools to golf carts to military helicopters — and pretty much everything in between.
Founded in 1923, it’s a $12.1 billion business (GD is four times its size) with 32,000 employees in 25 countries. Again, following the mobility theme, TXT owns some of the greatest names in commercial and corporate aviation — Bell Helicopter, Beechcraft, Cessna and Hawker.
Textron also has a number of industrial and consumer brands that will grow as the economy recovers. Up almost 20% in the past year, there’s plenty of growth ahead for this multifaceted multinational. Textron barely pays a dividend. So, TXT is a pure growth play.
FLIR Systems, Inc. (FLIR)
Forward Looking Infrared is known as FLIR in industry parlance. It’s the kind of technology that allows the camera in a drone to see bodies inside a house from three miles up.
So, what better company to take advantage of this increasingly popular technology than FLIR Systems, Inc. (FLIR)? FLIR Systems sells its cameras to all those drones flying all over the world.
What’s more, having proven its worth in wilds of Afghanistan and Yemen, FLIR is now broadening its line for commercial use. Security cameras, thermal imaging devices for electricians, first responders, homeowners, boaters, you name it.
With a $4 billion market cap, FLIR is more volatile than the former two stocks, but its mil-spec toughness in the commercial markets and the growth in surveillance for the military and homeland security mean while there are risks, the rewards could be manifold.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family 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.