Next-generation wars are likely to shift from the Earth to outer space. Weaponization of space or the arms race for the outer space is gradually picking up pace. On Mar 27, India became the fourth nation of the world with military space capabilities. The other three countries are the United States, Russia and China.
India’s Mission Shakti
On Mar 27, India conducted Mission Shakti, an anti-satellite missile test, from Dr. A P J Abdul Kalam Island launch complex. This was a critical military mission carried out by India’s Defense Research and Development Organization (DRDO).
The anti-satellite test was successful as a missile developed by indigenous technology hit a low-orbit satellite of the country. The DRDO confirmed that the test achieved all objectives. The significance of the test is that India will now be able to intercept and destroy a satellite in outer space.
Global Pursuit of Space Weaponization
In February 2019, U.S. Defense Intelligence Agency (DIA) published an extensive report about military expansion in space by China and Russia. The report revealed that China is conducting sophisticated satellite operations and could be testing on-orbit dual-use technologies for space missions.
The report also cited an instance when China destroyed a weather satellite in 2007 using an anti-satellite missile. Therefore, U.S. satellites used for navigation, early warnings and communication might be susceptible to attacks.
In October 2018, CNBC cited an U.S. intelligence report that Russia is preparing for an anti-satellite weapon that will be ready for warfare by 2022. It claimed it had a photograph of a never-before-seen missile on a Russian MiG-31 interceptor as proof.
The Trump administration is aggressively pursuing a new space-based missile defense system. Given the geopolitical tensions between the United States and countries such as Russia and China that are developing space weapon systems, Pentagon’s new defense technologies in space could be appropriate.
Last year, the U.S. Congress approved $11.5 billion for the Missile Defense Agency, an increase of $3.6 billion, or 46%, from the Trump administration’s May 2017 initial budget request. In addition, the Congress provided $1.3 billion in extra funds for the purchase of additional interceptors for the Navy’s Aegis missile defense program and the Army’s Theater High Altitude Area Defense system.
In addition to Russia and China, threats from North Korea and Iran make it imperative to develop space-based interceptors, since these can not only help in identifying enemy missiles but also destroy them in the first few minutes of flight.
Who Will Gain?
At this stage, major aerospace defense product (especially missile) developers are likely to gain. Here we have narrowed down our search to four stocks with strong footing in the defense sector.
Lockheed Martin Corp. LMT a security and aerospace company engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide.
Its Missiles and Fire Control segment provides air and missile defense systems; tactical missiles and air-to-ground precision strike weapon systems; logistics; fire control systems; mission operations support, readiness, engineering support, and integration services; manned and unmanned ground vehicles; and energy management solutions.
The stock carries a Zacks Rank #3 (Hold) and a VGM Score of B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company has an expected earnings growth rate of 7% for the current quarter. Lockheed Martin delivered average positive earnings surprise of 12.5% in the last four quarters.
Northrop Grumman Corp. NOC a security company, provides products in the areas of autonomous systems, cyber, space, strikes, and logistics and modernizations in the United States, the Asia Pacific, and internationally.
Its Mission Systems segment provides space systems; intelligence processing systems; air and missile defense integration systems; navigation systems; and shipboard missiles and encapsulated payload launch systems. The Innovation segment offers missile products and defense electronics.
The stock carries a Zacks Rank #3 and has a VGM Score of A. The company has an expected earnings growth rate of 9.3% for the current quarter. Northrop Grumman delivered a positive earnings surprise of 19.9% in the last four quarters.
Raytheon Co. RTN is a technology and innovation leader specializing in advanced and integrated products, services and solutions.
Its Military Systems segment develops and supports weapon systems comprising missiles, smart munitions, close-in weapon systems, projectiles, kinetic kill vehicles, directed energy effectors, and combat sensor solutions.
The stock carries a Zacks Rank #3 and has a VGM Score of A. The company has an expected earnings growth rate of 13.6% for the current year. Raytheon came up with a positive earnings surprise of 6.9% in the last four quarters.
General Dynamics Corp. GD is a global aerospace and defense company that offers a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; IT services and C4ISR solutions; and shipbuilding and ship repair.
Its Mission Systems segment offers mission-critical C4ISR products and systems, such as space, intelligence, and cyber systems, ground systems and products, and naval, air and electronic systems.
The stock carries a Zacks Rank #3 and has a VGM Score of A. The company has an expected earnings growth rate of 4.5% for the current year. General Dynamics delivered a positive earnings surprise of 19.9% in the last four quarters.
The chart below shows price performance of our four picks year to date.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
See Latest Stocks Today >>
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
General Dynamics Corporation (GD) : Free Stock Analysis Report
Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
Northrop Grumman Corporation (NOC) : Free Stock Analysis Report
Raytheon Company (RTN) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research