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Buy Northrop Grumman as Defense Spending Ramps Up

We’re in that part of the spending cycle that is very bullish for this sector

NOC stock - Buy Northrop Grumman as Defense Spending Ramps Up

Source: Steve Jurvetson via Flickr (modified)

Northrop Grumman Corporation (NYSE:NOC) is one of the leading U.S. defense contractors. Its DNA has set it up as the premier U.S. aerospace and C5ISR (command, control, communications, computing, combat systems, intelligence, surveillance and reconnaissance) player in the business. NOC stock isn’t the biggest but it is very good at what it does.

Of the top five defense contractors in the world, NOC comes in at No. 4, according to Defense News. Of the top 10, five are U.S. firms. And of those, Boeing Co (NYSE:BA) is No. 5, but only 22% of its business is defense related. Likewise No. 7 Airbus has only 15% of its business derived from defense and the rest from its commercial operations.

The top three — in order — are: Lockheed Martin Corporation (NYSE:LMT), Raytheon Company (NYSE:RTN) and UK-based BAE Systems PLC ADR (OTCMKTS:BAESY).

Of these, LMT and BAE are broadly diversified defense contractors that build everything from battleships to jet fighters to energy systems. RTN specializes in missiles and other aerospace and cyber work.

NOC sticks with aerospace solutions and autonomous vehicles that operate in the air, on the land and in the sea.

The thing about delivering autonomous vehicles is you also have to have a robust, secure network to deliver commands and receive information. And once you have these types of operations in place, it also means you can extend this skill set to operate in space as well.

NOC stock is a leading producer of drones, robotic combat vehicles and water-based drones as well. It is one of the leaders in getting U.S. forces out of harm’s way while still maintaining tactical and operation security.

This “networked battlefield” is a transformation that started a decade ago and is continuing at a much more rapid pace today.

While we’re still engaged in conflicts in Afghanistan, Syria and Iraq, we’re by no means in a hot war. The U.S. and its allies are chasing groups like al-Queda and others through North Africa and it’s these new systems that make this dangerous job slightly less dangerous.

Defense Spending and NOC Stock

Beside being the No. 1 arms salesman to the world, the U.S. is also starting to ramp up it own defense spending since it was frozen in 2011.

Last year, the Donald Trump administration and Congress took the spending cap off the U.S. defense budget. Then it upped spending significantly — from $590 billion to $692 billion.

Now that spending is unfettered, you can expect defense spending to take off again, especially during election years.

And NOC will be one of the chief beneficiaries. It already has the next-generation stealth bomber, the B-21 Raider contract, which will last for years. There’s now talk of a “space force” which would be a defense sector boon, especially for NOC with its newest acquisition of Orbital ATK (now Northrop Grumman Innovation Systems).

But simply upgrading and replacing all the old systems is a huge job that will last years into the future. The next generation battlespace isn’t cheap, and that’s great news for NOC.

Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough StocksAccelerated Profits and Platinum Growth. His most popular service, Growth Investor, 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, Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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