Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
It's Five Nights at Freddy's Again! - 12th Jan 25
Squid Game Stock Market 2025 - 5th Jan 25
Stock Market Bubble Drivers, Crypto Exit Strategy During Musk Presidency - 27th Dec 24
Gold Stocks’ Remain Exceptionally Weak Even as Stocks Rise - 27th Dec 24
Gold’s Remarkable Year - 27th Dec 24
Stock Market Rip the Face Off the Bears Rally! - 22nd Dec 24
STOP LOSSES - 22nd Dec 24
Fed Tests Gold Price Upleg - 22nd Dec 24
Stock Market Sentiment Speaks: Why Do We Rely On News - 22nd Dec 24
Never Buy an IPO - 22nd Dec 24
THEY DON'T RING THE BELL AT THE CRPTO MARKET TOP! - 20th Dec 24
CEREBUS IPO NVIDIA KILLER? - 18th Dec 24
Nvidia Stock 5X to 30X - 18th Dec 24
LRCX Stock Split - 18th Dec 24
Stock Market Expected Trend Forecast - 18th Dec 24
Silver’s Evolving Market: Bright Prospects and Lingering Challenges - 18th Dec 24
Extreme Levels of Work-for-Gold Ratio - 18th Dec 24
Tesla $460, Bitcoin $107k, S&P 6080 - The Pump Continues! - 16th Dec 24
Stock Market Risk to the Upside! S&P 7000 Forecast 2025 - 15th Dec 24
Stock Market 2025 Mid Decade Year - 15th Dec 24
Sheffield Christmas Market 2024 Is a Building Site - 15th Dec 24
Got Copper or Gold Miners? Watch Out - 15th Dec 24
Republican vs Democrat Presidents and the Stock Market - 13th Dec 24
Stock Market Up 8 Out of First 9 months - 13th Dec 24
What Does a Strong Sept Mean for the Stock Market? - 13th Dec 24
Is Trump the Most Pro-Stock Market President Ever? - 13th Dec 24
Interest Rates, Unemployment and the SPX - 13th Dec 24
Fed Balance Sheet Continues To Decline - 13th Dec 24
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Defense Tech Stock Plays Scorching the Market

Companies / Sector Analysis May 29, 2014 - 11:59 AM GMT

By: Money_Morning

Companies

Michael A. Robinson writes: After decades of working with defense technology companies, I know the ebb and flow of military spending all too well.

I remember that when the Cold War came to an end, the nation's political leaders were talking enthusiastically about the so-called "peace dividend."

That's Washington-speak for Pentagon budget cuts that always seem to come after a major conflict has ended.


Many investors believe that with our presence in Iraq largely gone, defense firms will offer mediocre returns at best.

I'm not buying into it. I think massive profit opportunities are there. And the market and the government are lining up behind them...

Not Just a Bull, a National Imperative

Fact is, earlier this decade, several key defense contractors saw there were tough times ahead and revamped operations to do well with lean budgets.

More to the point, as current dramatic news makes all too clear, the U.S. needs a strong global military presence with an army, navy, air force, and Marine Corps second to none.

The escalating conflict in Ukraine is a great example of why the U.S. must maintain a strong defense structure. It includes the ability to support NATO allies against incursions into Europe.

But that's not the only global threat we face...

Look at how aggressive China has become in its demand to control the South China Sea. Not only that, but North Korea's unstable regime remains a looming threat.

So, while many investors are looking at other sectors because of the ongoing Washington budget battles, defense stocks as a group have greatly outperformed the overall market.

Here's the thing. I grew up in a military household and have followed defense technology my entire career as an analyst.

In fact, I was in the tech trenches during the 1980s when President Reagan broke new ground with his tech-centric Strategic Defense Initiative, more commonly known as his "Star Wars" program.

So, I have seen first-hand the Pentagon and its prime contractors adapt to budget cuts and come back stronger every time. And they are brimming with advanced technology that gives America defense superiority.

Back U.S. Defense and Reap Huge Gains

What we want to do is take advantage of the all the opportunities to profit from tech breakthroughs and weapons programs that will permeate the entire sector.

That's why I think investors would do well to take a good look at PowerShares Aerospace & Defense (NYSE: PPA). This is a cost-effective ETF made up of 80% defense and aerospace stocks from companies who are proven leaders.

The fund has a solid mix of companies, including cutting-edge small caps like FLIR Systems Inc. (Nasdaq: FLIR), the world's predominant maker of commercial thermal-imaging cameras.

There's also the advanced materials firm Hexcel Corp. (NYSE: HXL), which supplies honeycomb composites to some of the biggest names in the aerospace industry.

But the heart of this ETF play is found in its top 10 holdings.

They include many well-capitalized companies that have succeeded for decades regardless of Washington's defense budget battles.

Raytheon Company (NYSE: RTN) is a full-spectrum company that provides the Pentagon with systems for electronic warfare, laser rangefinders, military training, and advanced radar.

Plus, the company's intercept vehicles, radars, and space sensors work together to protect the U.S. and its allies against ballistic missiles, cruise missiles, aircraft, and other threats.

Raytheon was recently awarded an $8.5 million contract by the Office of Naval Research to develop a digital radar system that is thought to be the world's most advanced.

In this year's first quarter, earnings per share increased 3% from the year ago quarter to $1.57. New bookings grew 19% to $4.3 billion. Trading at $97 a share, Raytheon has a $30 billion market cap.

For its part, Lockheed Martin Corp. (NYSE: LMT) is well-known for making military aircraft. But the firm also supplies combat ships and ground vehicles as well as advanced radar and tactical communications.

Indeed, this is a company that illustrates what I've been talking about in terms of realigning to take advantages of the sector's broad changes. The company's history dates back more than 100 years, but the modern firm came together in a 1995 merger.

Lockheed Martin's reach also includes space exploration, satellite systems, and climate monitoring. Moreover, the company has deep expertise in biometrics, cyber security, and the booming field of cloud computing.

The company recently secured two contracts from the U.S. Navy and Royal Canadian Air Force, combining for $34 million to develop laser-guided bombs.

In this year's first quarter, sales fell 4% to $10.7 billion, but profits rose 23% to $933 million. The company forecasts higher sales, operating margins, and cash flow for the full year. Trading at $162 a share, Lockheed Martin has a $51 billion market cap.

And Northrop Grumman Corp. (NYSE: NOC) has a wide spectrum of operations that cover everything from advanced sensors to missile defense to cyber security.

The company makes manned and unmanned aircraft for defense applications. But it's also collaborating with Yamaha to develop an autonomous helicopter with onboard intelligence gathering equipment for such civilian uses as search and rescue and forest fire observations.

Northrop Grumman also provides the military with electronic warfare and infrared countermeasures. In addition, the firm gives us a strong play on sensor technologies, advanced materials, and laser weapons systems.

For the first quarter of 2014, sales fell 5% from the year-ago period to $5.8 billion, but earnings per share rose 23% to $2.63. Trading at $120 a share, Northrop Grumman has a $26 billion market cap.

Thus, for tech investors PPA offers us access to some of the best and most advanced systems on earth - everything from robotics to sensors and space exploration.

It sells for just a fraction of some of its big-cap members. PPA trades at just $32, less than one-third the price of even the cheapest of the three big-cap defense firms we talked about today.

And it offers us superior returns. Over the past two years, PPA has gained some 74%. That's more than two-thirds better than the S&P 500's return over the period of 44%.

Setting Up Perfectly for the Short Term (and Long)

This also is a great long-term play. See, no matter what happens in Washington over the next several years, America's role as the world's only real superpower means we have little choice but to fund a strong defense system.

Plus, the U.S. will continue to push the boundaries of tech-centric warfare. No matter which party is in power after 2016, advanced technology will continue to get strong fiscal support.

All of which means both the big-cap contractors and the small-cap cutting edge firms stand to gain, which will only provide more support and price appreciation for PPA.

Source : http://moneymorning.com/2014/05/21/this-chart-proves-the-bitcoin-market-is-maturing/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in