3 Defense Stocks to Buy in the Calm Before the Storm

President Trump appears to have a handle on geopolitical crises, but this lull in defense stocks is only temporary

One of the key reasons why Donald Trump was elected president is his business credentials. This resonated with voters, who saw other candidates as career politicians. That said, being President involves more than just the economy. His lack of political, especially geopolitical experience was a question mark, making defense stocks somewhat of an ambiguous affair.

Surprisingly, though, President Trump appears to have scored a major victory. Over the last several years, the North Korean regime has been a thorn on the international community’s side. That became all the more apparent during the nuclear missile testing crisis. With no good options available, we appeared destined on the warpath unless cooler heads prevailed.

Since we’re talking about Trump and Kim Jong Un, open conflict seemed the more likely scenario. Naturally, defense stocks shot skyward in the grave uncertainty.

But now, North Korea has signaled multiple times that they’re “committed to denuclearization.” This comes against the backdrop of thawing relations with South Korea during the last Winter Olympics. During the tournament’s opening ceremony, the two Koreas stepped forward as a unified team. In turn, several defense stocks have dropped from this year’s closing highs.

Although encouraging, no one is about to trust the North Korean regime at their word. In addition, we have other serious flashpoints, including our deteriorating relations with Russia.

As former President Ronald Reagan would say, “trust but verify.” Here are three defense stocks to buy as we dive further toward another Cold War.

Defense Stocks to Buy: Lockheed Martin (LMT)

Undoubtedly, one of the benefactors of the Trump administration is Lockheed Martin Corporation (NYSE:LMT). Since election day on Nov. 8, 2016, LMT stock has shot up nearly 47%. First, our Commander-in-Chief’s “America First” policy buoyed shares. Later, the North Korean missile crisis provided a nature catalyst for the famous military contractor.

However, during the middle of the PyeongChang Winter Olympics, LMT stock hit a peak for the year. Since Feb. 15, the company has lost almost 6% in the markets. The Olympics went off without a hitch, and after the tournament closed, South Korean delegates met with North Korean leaders. Furthermore, a previously unthinkable meeting between President Trump and Kim Jong Un may occur before the end of May.

Is a breakthrough in the North Korea crisis imminent? I can only hope so. But history has demonstrated that you can never appease crazed dictators. Call me a pessimist, but I wouldn’t hit the bid on LMT stock just yet.

In addition, I don’t want to jump the gun on this potential meeting. For one thing, I genuinely don’t see what the upside is for Trump, other than to produce a historical photo-op. The U.S. has a long history of never negotiating with terrorists: I’m sorry, but North Korea is a terrorist state.

Anything can happen here, which is why I think the present selloff for LMT is a buying opportunity.

Defense Stocks to Buy: United Technologies (UTX)

Just like Lockheed Martin, United Technologies Corporation (NYSE:UTX) has loved making America great again. Since Trump’s election shocker, UTX stock has gained a robust 26%. The multinational conglomerate and huge military contractor is also enjoying an extended reversal of fortune. After all, in 2015, shareholder value dropped 14%.

The “Captain America” theme naturally provided hearty tailwinds for UTX stock. But with tensions thawing in the Korean peninsula, the company’s military arm is on standby. Since the beginning of February, UTX shares are down nearly 8%.

As previously mentioned, I have my doubts on the North Korean crisis. While the diplomatic endeavors are admittedly encouraging and substantive, we still need China’s assistance in controlling Kim. Unfortunately, Trump has adopted a direct, confrontational stance with China regarding economic policy. We’ll see how this plays out. If things don’t turn out well, however, don’t be surprised to see UTX resume its march upward.

And while most eyes are focused on the Korean peninsula, investors should note our deteriorating relationship with Russia. Recently, the Trump administration expelled 60 Russian diplomats as a response to the Kremlin’s alleged assassination attempt of a former Russian spy. Other western nations expelled varying numbers of Russian diplomats. Now, Russia has ordered 60 of our diplomats out of the country by April 5.

This tit-for-tat is further confirmation that Cold War 2.0 is alive and well. That translates to a supportive environment for defense stocks to buy, and UTX is especially compelling for its recent pullback.

Defense Stocks to Buy: L3 Technologies (LLL)

Defense Stocks to Buy: L3 Technologies (LLL)
Source: Shutterstock

Among defense stocks, L3 Technologies Inc (NYSE:LLL) may have been the most relieved to see a Trump victory. In late October, LLL stock suffered a sharp dip. At one point, it appeared that the military contractor would drop into no-man’s-land. Fortunately, the unexpected election win sent LLL right back to where it was prior to the October selloff.

Now, the question is whether L3 can keep its momentum alive. Against the closing high for this year, LLL stock is down 4%. The potential for a groundbreaking peace in the Korean peninsula has kept shareholders on the sidelines.

As I’ve argued for the other two companies, I think the markets are overly optimistic regarding a peaceful resolution. Too many variables exist, and any one of them could put a wrench in diplomatic efforts. Moreover, we shouldn’t ignore the conflicts in which we’re still embroiled.

For instance, while the terrorist group ISIS is close to being fully defeated, they still pose a threat. Extremist recruiting is a constant worry, and homegrown terrorists can strike without warning.

The nature of warfare is changing, and this dynamic particularly suits LLL. All nations fear our military not for our raw numbers, but because we can eliminate targets anywhere with pinpoint precision. Such combat superiority wouldn’t be possible, however, without military technology companies like LLL.

Sure, we’re in a geopolitical lull right now due to a potential breakthrough in North Korea. Nevertheless, just like our military ethos, you should prepare for any situation. Geopolitical flashpoints rarely resolve smoothly and straightforwardly. Therefore, my money is on LLL stock.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/04/3-defense-stocks-buy-amid-calm-storm/.

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