When tensions arise between nations, markets get rattled but one sector often holds up amid the saber-rattling. For those of us anticipating more posturing, recriminations and other breaches of the peace, a position in defense stocks might be as reliable a wager as any.
To help you pick the best of the best defense stocks, I’ll present to you a selection of U.S.-focused large-cap companies that provide not only a dividend while you wait for a crisis to erupt, but strong potential for upside when turmoil arises.
Notably absent from this list of defense stocks to consider will be Boeing (NYSE:BA), which just announced that it received zero plane orders in January. This is not a good sign, so I’ll be looking elsewhere for my defense-sector picks today.
Without further ado, let’s go on the offensive with three defense stocks to consider adding to your holdings.
Defense Stocks to Buy: Lockheed Martin (LMT)
When Boeing just won’t do, Lockheed Martin (NYSE:LMT) will do just fine.
In fact, I would assert that it’s the better buy at the moment. A respectable 2.18% annual dividend payout and a price-to-earnings ratio of 19.89 add up to a perfectly reasonable buy-and-hold, even when geopolitical tensions aren’t running hot.
In contrast to the dismal news for Boeing, Lockheed Martin just landed a sweet $347 million deal with the U.S. Navy to ramp up a defense program in Orlando. Lockheed has something akin to a love affair going on with Orlando, it seems, as the company intends to employ 9,000 workers in the vicinity by 2023 and just shipped its third GPS III satellite to Cape Canaveral. Evidently the home of Disneyland is also the epicenter of Lockheed’s business activity, which is fine with me, as long as they’re making money.
Northrop Grumman (NOC)
Rising tensions mean that it’s time to get bullish on firms with Pentagon connections, and Northrop Grumman (NYSE:NOC) fits squarely into that category. In fact, this company participates in Pentagon contracts involving the F-35 stealth fighter and the world-famous B-21 stealth bomber, and Northrop is seeking to add more Pentagon deals to its fiscal arsenal.
There’s a Lockheed connection here, as Northrop Grumman serves as a subcontractor on Lockheed Martin’s powerful F-35 fighter aircraft model. Not only that, but Northrop also produces the Global Hawk drone and enhanced its market footprint in the space race in 2018 when the company acquired Orbital ATK.
These plum deals, coupled with a 1.43% annualized dividend yield, should place NOC front-and-center in any well-rounded defense-niche portfolio.
L3Harris Technologies (LHX)
This final pick might have a funny name, but L3Harris Technologies (NYSE:LHX) is serious business with a 1.32% annual dividend yield and a multimillion-dollar contract with the U.S. Air Force to develop an artificial-intelligence (AI) software platform. Since AI is the latest frontier in defense technology, L3Harris is in the right place at the right time to capitalize on America’s need to compete with other nations in this area.
The partnership with the Air Force might not end there, however, as L3Harris recently passed the preliminary design review phase as the company seeks the opportunity to develop the Navigation Technology Satellite-3 (NTS-3) program. As L3Harris Space and Airborne Systems President explains:
“We have moved from contract award to finishing an early design review in under one year, which is an amazing accomplishment for a satellite development program that normally takes twice that amount of time … We have proven we can move quickly to support the Air Force’s go-fast mission requirements.”
Given these exciting developments, I wouldn’t be at all surprised if LHX stock has a “go-fast” moment as the defense sector gears up for a potentially turbulent — and lucrative — 2020.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.