Tomahawks in Syria, the “Mother Of All Bombs” in Afghanistan, an armada of Aircraft carriers heading towards North Korea. President Donald Trump is certainly flexing America’s military might. So it’s no wonder why defense stocks have been one of the market’s best performers since he won the Presidency. Since his election, defense stocks have risen by roughly 15%. That compares to a gain of just 10% for the S&P 500 Index.
But the real beauty is that the sector could have more gains ahead.
Let’s be honest, the number of global conflicts is only rising, and Trump’s team continues to be very keen on making the U.S. the protector of the world again. That’s evident by his plans to boost the military budget by over $54 billion. That increase in spending as well as overall global weapons outlays should see the defense stocks continue to reap some pretty decent gains over the next four years. Meanwhile, pushes into cybersecurity and the private sector will only boost revenues further for the industry.
In the end, despite the recent gains, the defense stocks could be one of the better plays over the next four years.
With that in mind, here are three defense stocks to buy today.
Defense Stocks to Buy Today: Raytheon Company (RTN)
Raytheon Company (NYSE:RTN) makes things that go boom. Namely, all those surface-to-air weapons like those Tomahawk and Patriot missiles.
With Trump getting tough on ISIS, Syria and other threats, RTN’s missile systems will be in high demand from the Pentagon. As will the rest of its high-tech radar, sensor and precision control products. Sales of these systems to the U.S. and friendly nations ultimately drive Raytheon’s cash flows.
But what will increase them further will be its sales to banks, utilities and retailers.
No, your electric utility isn’t buying missiles. What it is buying is a hefty dose of cyber security. RTN has moved head-first into cyber and electronic warfare.
That includes beefing up divisions in stealth applications and rolling out a whole host of cyber security software and hardware to prevent hackers, worms and other threats. And in the wake of several high-profile hacking attacks, various banks, retailers and other private firms are starting to seriously buy Raytheon’s products. ForecPoint — its cyber division — saw its sales jump more than 8% last quarter and recorded a hefty full-year increase as well.
These sorts of increases have only gone on to power RTN’s cash flows and dividend — a payout that has grown every year, for the last 13 years straight.
When it comes to defense stocks, Raytheon has the right blend of standard military hardware and growth elements to keep portfolio’s happy over the next four years.
Defense Stocks to Buy Today: L3 Technologies Inc (LLL)
Historically, L3 Technologies Inc (NYSE:LLL) has been the supplier of secure communication systems and specialized communication products for airplanes, helicopters and other aircraft. That bread-n-butter is still there. It, along with various cockpit and radar systems for aerospace, provide the bulk of LLL’s profits and long-term contracts from the U.S. and foreign governments.
However, L-3 has recently undergone a game-changing transformation.
This transformation focused on Intelligence, Surveillance and Reconnaissance (ISR) applications. That’s a fancy way of saying “spy equipment.” This included buying a bunch of smaller private firms and beefing-up its own arsenal of sensors and satellite equipment. This focus on spy games has already started to pay significant benefits as the division — while its smallest — has shown some decent growth numbers over the last year.
Moreover, the focus on spy games puts LLL in the driver’s seat when it comes to future military spending. After all, it doesn’t matter how many missiles you have if you have no idea where the enemy is. Likewise, preventing terrorist threats here at home has become priority No.1. This gives L-3 an advantage over other defense stocks.
For L-3, this focus on spy games should help it continue to its continued pace of earnings and cash flow growth. Investors will gain from a rising dividend and buyback program.
Defense Stocks to Buy Today: General Dynamics Corporation (GD)
For over 100 years, General Dynamics Corporation’s (NYSE:GD) Bath Iron Works and Electric Boat divisions have been the primary builder of boats and submarines for the U.S. That’s wonderful for GD, considering President Trump wants to expand the number of ships from 275 to 355.
Already, General Dynamics has a pretty decent sized backlog, but any additional orders should help the defense contractor continue to raise its cash flows.
But GD has another way to grow: private plane orders.
General Dynamics is also the producer of Gulfstream private jets. With rising equity prices and nearly eight years worth of stock market gains, the rich’s pockets are feeling swollen. While total number of jet orders have dipped slightly due to jet sharing companies, orders are still pegged to be around 625 this year. Of which, GD gets a large lion’s share.
In the end, the massive amount of new ships plus any commercial revenues should continue to make GD a star. And that will benefit investors through its rising dividend and hefty capital gains, as General Dynamics stock is up by roughly 40% since the election.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.