This has been a very unpredictable election cycle. But out of it, there is one fact that is clear: Defense is on both major candidates’ agendas, in a very bullish way.
Donald Trump talks about building more ships and planes and beefing up our military might for deterrence purposes. Hillary Clinton is very hawkish when it comes to using the military to project U.S. influence where U.S. interests are at stake.
That means, regardless who wins, the defense sector is looking at a great four years at least.
Also, remember that the Democratic National Committee’s files were hacked, as was the NSA and DHS. Cybersecurity is another crucial aspect that certain defense companies are very involved in. This is going to be a major growth industry for years to come and state-supported and individual hackers look to violate sensitive files.
Here are seven defense stocks that can anchor your portfolio’s offense.
Defense Stocks to Buy: Lockheed Martin Corporation (LMT)
Lockheed Martin Corporation (NYSE:LMT) is the second largest defense contractor by market cap. The No. 1 spot is held by Boeing Co (NYSE:BA), but it is a more diversified company than LMT.
So, it’s safe to say LMT is the biggest blue-chip, pure defense play in the stock market.
LMT builds the A-10 Warthog, the F-16, the F-22 and the F-35 fighters jets. It also has a huge range of helicopters. It builds missiles and missile defense systems. It has a robust C4ISR (command, control, communications, computing and reconnaissance) division the complements LMT’s robust Cyber Solutions division.
The power that LMT holds is the fact that its platforms can be integrated to work with one another easily. That provides a competitive moat as well as a competitive advantage versus smaller defense firms that specialize in one or two defense sectors.
LMT stock is up 26% in the past six months, yet it still throws off a solid 2.7% dividend. This is a very good entry point.
Defense Stocks to Buy: Northrop Grumman (NOC)
Northrop Grumman Corporation (NYSE:NOC) existed as two separate aircraft innovators until 1994 when they joined forces to create a very influential defense firm.
Since those days it has expanded its repertoire to almost every facet of the defense industry, including C4ISR, unmanned vehicles and cybersecurity, as well as its iconic aircraft like the B-2 bomber and the next generation B-21 bomber; outrunning all its competition, including a Lockheed and Boeing team.
This deal will be the foundation for the future of U.S. long-range bombers. Running more than $540 million apiece, the contract is for delivery over a number of years for 21 B-21s. That’s a sizable deal.
While currently No. 6 in size, NOC consistently punches above its weight. And it uses its size to its advantage, grabbing contracts it can deliver on budget and on time, which is something Congress as well as the Pentagon appreciate a great deal.
LMT is up 13% in the past six months and is delivering a 1.7% dividend. But you’re not buying this for the dividend, this is a long-term growth play.
Defense Stocks to Buy: Huntington Ingalls Industries (HII)
Huntington Ingalls Industries Inc (NYSE:HII) is a unique niche player in the broader defense sector.
It designs, builds, overhauls and repairs ships for the U.S. Navy and the U.S. Coast Guard. It’s the sole builder of USCG cutters and builds submarines and destroyers for USN. It also is one of the only firms to refuel the nuclear reactors on ships and submarines, as well as do maintenance and quality control on the U.S. nuclear fleets.
The simple fact is, if you are putting more ships to sea, there will be more maintenance on more ships. HII will see business from its shipyards as well as contracts for building out the next generation of ships and submarines.
The stock is already moving higher, up 30% year to date. Part of this is the fact that since the military spending sequester kicked in, older ships are requiring more maintenance. But that cycle is ending and increased defense spending will certainly raise HII’s boat even further.
Defense Stocks to Buy: L-3 Communications Holdings (LLL)
L-3 Communications Holdings, Inc. (NYSE:LLL) is a very low-profile communications company that specializes in secure communications systems predominantly for the defense and intelligence markets.
After Iraq began to wind down, the U.S. military was making a big move into North Africa. The first step in that direction was having LLL go in and build a communications infrastructure for the countries that were allowing U.S. forces.
It’s a win-win; the country gets a solid telecom architecture and the U.S. military and intel get a serviceable comms backbone on which to run their own secure communications.
This is the quiet world of defense, but it’s no less lucrative. As a matter of fact, this type of sensitive work usually comes at a premium. And this type of work will continue to attract dollars.
For espionage, national security and operational security, the telecom sector is extremely important to manage and deliver. Reliability is crucial. LLL has built a reputation delivering.
The stock is up 26% in the past six months and delivers a 1.9% dividend.
Defense Stocks to Buy: Raytheon Company (RTN)
Raytheon Company (NYSE:RTN) was one of the nation’s first tech startups, exploding on the market in 1922.
RTN came out of the minds of Massachusetts Institute of Technology scientists. Its initial invention was a gas tube that made it possible to mass produce quality radios cheaply.
By WWII, RTN was making magnetron tubes used for radar that were used almost exclusively for the U.S. and British armed forces. This is actually when the commercial possibilities of microwaves were discovered. An RTN scientist noticed a chocolate bar in his pocket melted when he was using a radar device. He set out some popcorn kernels, and they popped. And so the microwave oven was born.
Today RTN makes Patriot missile defense systems and other similar devices that take serious number crunching and technical detail. It’s also aggressively moving into the cybersecurity sector now as well.
RTN is up almost 13% in the past six months and is throwing off a 2.1% dividend. There is a lot of potential growth for this old-school defense tech firm.
Defense Stocks to Buy: BWX Technologies (BWX)
BWX Technologies Inc (NYSE:BWXT) has one of the most unassailable market positions in all of the defense industry.
It supplies nuclear fuel to the U.S. military and also works with the U.S. government and select companies in the commercial nuclear energy industry.
It is the only company that is authorized by the U.S. government to supply nuclear fuel, components, site services and technical expertise. That is a sweet niche.
Recently it just inked a deal to purchase GE Hitachi Nuclear Energy Canada, which will make it a major player in the Canadian nuclear industry. Canada is supportive of nuclear energy and this will help drive more demand for BWXT services in coming years.
There has been recent buzz about big defense contractors developing portable nuclear generators that could be used to power remotely deployed troops in the near future. If this continues to move forward, BWXT is in a prime position to profit. And if it doesn’t, BWXT still has a grip on the nuke industry in North America.
BWXT is up 23% for the year and has plenty of headroom from here.
Defense Stocks to Buy: CAE (CAE)
CAE Inc (USA) (NYSE:CAE) is a Canada-based company that specializes in training and cross-training for the aviation, defense and security and healthcare markets.
This may seem like an odd combination of sectors, but many of the training needs overlap. For example, the military will set up mobile hospitals to help stabilize and operate on wounded soldiers and civilians in a conflict area.
There have to be healthcare standards and protocols established and that has to be integrated into the military chain of command. Similarly, if you were having a joint military exercise between U.S. and Canadian armed forces, all that would have to broken down and structured so that the protocols don’t get in the way of the exercises.
This may not be the most exciting sector of the defense industry, but it is a necessity and as we see with the conflicts going on around the globe, training is a crucial part of deployment.
CAE has been putting in solid numbers for quite a while now, and while growth isn’t meteoric, it is solid and consistent, year in and year out. It’s also a great value here.
Year to date, CAE is up nearly 28% and still throws off a 1.7% dividend. The dividend, by the way, has increased every quarter for the past seven years. There’s still plenty of growth left in this sector and for CAE in particular.
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.
