Trump Sanctions $717B Defense Policy Bill: 4 Stocks to Buy
On Aug 13, President Trump gave the final nod for the colossal fiscal 2019 National Defense Authorization Act (NDAA), thus sanctioning a spending allowance of $717 billion for United States’ national security. Notably, the budget proposed in February got approval from the U.S. Senate last month.
This sanction is considered to be the most significant investment in the U.S. military force. No doubt, Trump’s approval for the defense policy bill would give a significant boost to the growth prospects of the major defense primes in the country and consequently drive their share price.
Highlights of the Bill
The NDAA outlines $616.9 billion as Pentagon's base budget, $69 billion for overseas contingency operations funding and $21.9 billion for nuclear weapons programs under the Energy Department.
Impressively, the act authorizes a 2.6% pay raise for military along with an increase in the active duty forces by 15,600 service members. With this new act, Pentagon aims to expand the size and strength of U.S. military by adding thousands of new recruits to active duty, Reserve and National Guard units, including 4,000 new active duty soldiers.
The legislation also authorizes notable investment for military construction, including family housing.
While majority of the analysts applauded the signing of the bill in terms of U.S. defense spending, Trump’s weaker stance with respect to U.S. government contracts with China’s ZTE Corp and Huawei Technologies received serious criticism from lawmakers, both Republic and Democratic. In particular, in the final version of NDAA, Trump lifted an earlier ban on U.S. companies selling to ZTE, allowing China’s second-largest telecommunications equipment maker to resume business.
Leaders of U.S. intelligence agencies have expressed their concern as they worry that such leniency might raise the risk of espionage.
Stocks in the Limelight
Notably, since Trump’s ascension to presidency, companies in the Aerospace and Defense space have gained the maximum in comparison to other sectors. The recent signing of the fiscal 2019 defense policy bill has perked up prospects of these stocks.
In view of this, it seems prudent to divert investors’ focus to defense stocks that have gained following the authorization of the bill and hold a favorable Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lockheed Martin Corp.LMT
The Pentagon’s prime contractor, Lockheed Martin, is the manufacturer of the defense department’s most vital program, the F-35 fighter jet. The legislation allows procurement of 77 F-35 joint strike fighters for $7.6 billion. It also funds spending for F-35 spares, modifications and depot repair capability. Also, the legislation authorizes $85 million for UH-60M Black Hawk utility helicopters. Moreover, the budget includes an investment plan for THAAD missiles.
Lockheed Martin’s share price has gained 0.2% since Trump signed the bill.
Huntington Ingalls Industries, Inc.HII
One of the prime beneficiaries of this new spending proposal will be Huntington Ingalls. For more than 100 years, this company has been building ships, aircraft carriers and submarines for the U.S. Navy at their shipyards in Virginia and Mississippi. The recently signed bill authorizes $24.1 billion for shipbuilding to fully fund 13 new battle force ships and accelerate funding for several future ships.
Huntington Ingalls’ share price has gained 1.1% since Trump signed the bill.
Engility Holdings, Inc.EGL
This company provides intelligence solutions along with sophisticated aerospace and systems engineering expertise and tools to the U.S. Government. With the recently signed bill aiming at replacing aging tanks, planes and ships with the most advanced and lethal technology ever developed and concerned systems, we may expect defense primes like Engility to gain substantially.
Engility’s share price has gained 1.9% since Trump signed the bill.
It offers highly engineered products and services for high-performance platforms and critical applications in key areas such as commercial aerospace and defense electronics. The NDAA includes spending provisions for a handful of military jets and vehicles that incorporate electronics enhancements.
Curtiss-Wright’s share price has gained 1.1% since Trump signed the bill.
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