U.S. Markets closed

4 Lucrative Defense Stocks to Add to Your Portfolio Now

Aparajita Dutta

U.S. defense stocks have been riding high ever since President Trump entered the Oval Office.

Impressively, the Zacks Aerospace sector, which includes the U.S. defense biggies, has gained 18.1% in 2019 so far compared with the S&P 500’s increase of 14.3%.

Let us now discuss in brief the growth catalysts that will continue to drive U.S. defense stocks’ rally as the year progresses.

A Solid Budget for Fiscal 2020

Trump proposed defense spending of $750 billion last month for fiscal 2020. This new plan reflects a solid 5% increase from the nation’s existing defense budget.  No doubt, on approval, this budget would significantly boost the profit of U.S. defense biggies.

Notably, the proposed budget provisions $165 billion for Overseas Contingency Operations (OCO) (as reported by CNN), an account that pays for military operations overseas in places like Afghanistan, Syria and Iraq. If approved, this would mark a striking increase from the 2019 budget, which sought $69 billion for that operational account. As major U.S. defense companies continue to expand their international presence, such a significant increase in OCO provision will certainly boost their businesses across the globe.

Prospective Mergers

Last year, the U.S. defense space witnessed a number of notable mergers and acquisitions like that of Northrop with Orbital ATK and United Technologies with Rockwell Collins. This is because companies are trying to enhance their portfolio to reap the benefits of expanding defense budget and survive amid cutthroat competition. Keeping up with this trend, L3 Technologies is all set to merge with Harris Corp. Such mergers should further strengthen the U.S. defense space, attracting more contracts from across the world.

Solid Q1 Earnings Picture

As of Apr 3, companies in the Zacks Aerospace sector are expected to record annual earnings growth of 4.5% on sales growth of 8.6% in Q1. Such encouraging quarterly estimates set the stage for the addition of defense stocks to one’s portfolio.

Our Choices

President Trump’s huge defense spending proposal and 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) and have outperformed the S&P 500. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teledyne Technologies Inc. TDY

Teledyne’s earnings estimates for 2019 indicate an annual improvement of 5.3% while that for sales show 6.7% growth. It carries a Zacks Rank #2. Shares of Teledyne have risen 17.4% this year so far.

The Boeing Company BA

Boeing’s earnings estimates for 2019 indicate an annual improvement of 25.6% while that for sales shows 9.5% growth. It sports a Zacks Rank #1. Shares of Boeing have risen 19.3% this year so far.

Spirit AeroSystems Holdings, Inc. SPR

Spirit AeroSystems’ earnings estimates for 2019 indicate an annual improvement of 20.8%, while that for sales shows 12.6% growth. It sports a Zacks Rank #1. Shares of Spirit AeroSystems have risen 22.2% this year so far.

Heico Corp. HEI

Heico’s earnings estimates for 2019 indicate an annual improvement of 18.2% while that for sales shows 10.4% growth. It carries a Zacks Rank #2. Shares of Heico have risen 26.3% this year so far.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

See their latest picks free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
The Boeing Company (BA) : Free Stock Analysis Report
 
Heico Corporation (HEI) : Free Stock Analysis Report
 
Spirit Aerosystems Holdings, Inc. (SPR) : Free Stock Analysis Report
 
Teledyne Technologies Incorporated (TDY) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research