Defense stocks have had a great run since Donald Trump’s ascension to the post of the United States’ President, courtesy of his humongous defense spending plan. Further, Trump’s efforts to improve the U.S. defense forces have also paved the way for the sector’s gains.
Meanwhile, geopolitical conflicts continue to flare up on a global scale, and the magnitude of existing issues carries the potential to bolster growth for U.S. defense companies in 2019 as well.
Moreover, President Trump has allegedly asked his Defense Secretary to present a $750-billion defense budget proposal for fiscal 2020, per a report by Politico. Under such circumstances, adding defense stocks to one’s portfolio seems prudent.
Defense Stocks on a Tear
President Donald Trump has just finished two years in office and defense stocks have rallied significantly. As a matter of fact, the iShares U.S. Aerospace & Defense (ITA) ETF has surged more than 30% since Jan 19, 2017. Moreover, in the same time period, the ETF has also outperformed the S&P 500, which has gained 18%.
Further, gains for the ITA were buoyed by the steady increase in shares of Boeing BA, AeroVironment AVAV and Aerojet Rocketdyne AJRD. These stocks have surged more than 200% in the past two years.
America’s Space Ambitions
As proposed by both Vice President Mike Pence and President Trump, the newest branch of U.S. military would be incorporated by 2020. The force would be officially called “Space Operations Force.” America is specifically interested in laying out a layer of sensors in space that can easily detect enemy strikes at the moment of launch.
Pence urged the U.S. Congress to earmark $8 billion over the next five years for the much-ambitious project. He also stated that a fully incorporated space force is going to cost much more.
Notably, the Deputy Defense Secretary, Patrick Shanahan has stated that Pentagon has not commented on the exact cost of the project. Meanwhile, Defense Secretary, James Mattis, who had earlier objected to the program, has now stated that he supports it. (Read More)
Defense Budget to Rake in Big Gains for the Sector
America’s defense sector has gained significantly from the Republican-controlled Congress’ humongous defense budget. Moreover, it goes without saying that GOP’s tax overhaul late last year also provided the sector with the required stimulus for growth.
According to a Bloomberg report, the United States increased missile defense spending by 25% to $9.9 billion in the current fiscal year. Also, in September 2018 the Pentagon announced it would approximately spend $2 billion over the next five years on development of artificial intelligence (AI).
Interestingly, the removal of “sequestration" budget caps last year by the Congress has been a welcome relief for the sector. The amendment also lifted limits on defense spending that have been around from 2013. Finally, the most recent defense spending bill was passed without any “continuing resolution” which enabled companies to gauge their future sales better.
4 Best Choices
President Trump’s huge defense spending bill, ever-growing geopolitical tensions and America’s defense resolve should lead to gains for defense stocks in 2019.
In this context, we have selected four defense stocks that are expected to gain from these factors. These four stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Northrop Grumman Corporation NOC is a provider of defense and surveillance products. The company manufactures systems used for cyber, command, control, communications and computers, intelligence, surveillance, and reconnaissance purposes.
The company is based out of Falls Church, VA and sports a Zacks Rank #1. The expected earnings growth rate for the current year is 15.58%. The Zacks Consensus Estimate for the current year has improved 0.3% over the past 60 days.
Heico Corporation HEI is a designer and manufacturer of aerospace, defense, and electronic related products and services.
The company is based out of Hollywood, FL and has a Zacks Rank #2. The expected earnings growth rate for the current year is 15.06%. The Zacks Consensus Estimate for the current year has improved 4% over the past 60 days.
The Boeing Companyengages in designing, developing, manufacturing and supporting commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems.
The company is based out of Chicago, IL and carries a Zacks Rank #1. The expected earnings growth rate for the current year is 20.93%. The Zacks Consensus Estimate for the current year has improved 0.1% over the past 60 days.
Kratos Defense & Security Solutions KTOS is provider of mission critical products and services such as satellite communications, training systems, modular systems, and defense and rocket support services.
The company is based out of San Diego, CA and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 73.17%. The Zacks Consensus Estimate for the current year has improved 5% over the past 60 days.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
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The Boeing Company (BA) : Free Stock Analysis Report
Northrop Grumman Corporation (NOC) : Free Stock Analysis Report
Aerojet Rocketdyne Holdings, Inc. (AJRD) : Free Stock Analysis Report
AeroVironment, Inc. (AVAV) : Free Stock Analysis Report
Heico Corporation (HEI) : Free Stock Analysis Report
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