The U.S. defense companies stood tall through 2018, courtesy of a number of favorable factors. Let’s take a closer look.
One Year Price Return Performance
The fiscal 2019 U.S. defense budget, which provisioned for a spending of $716 billion on national security, acted as a major catalyst. Notably, this allotment reflected 5% real growth over the initial fiscal 2018 budget.
Meanwhile, U.S. arms exports saw a significant boost, contributing to the defense stocks’ rally. Evidently, the United States signed $46.9 billion in weapons sales to foreign allies in the first half of fiscal 2018, compared to $41.9 billion from fiscal 2017 (as told by Lt. Gen. Charles Hooper, head of the Defense Security Cooperation Agency, in an interview to Defense News).
A few big mergers and acquisitions this year also played part in enhancing U.S. defense space’s economies of scale. These include Orbital ATK’s $9.2-billion acquisition by Northrop Grumman NOC and Rockwell Collins’ $30- billion buyout by United Technologies UTX. Such takeovers are expected to expand operations and boost revenues for U.S. defense players in 2019.
What’s in Store for 2019?
As geopolitical conflicts continue to flare up on a global scale, the magnitude of existing issues carries the potential to bolster growth for U.S. defense companies in 2019 as well. Some of these issues involve growing terrorism activities in the Middle-East region, involving nations like Syria and Iraq along with Saudi Arabia-led coalition in Yemen. However, rising demand for Russian ammunition in Saudi Arabia and Iraq has to some extent lowered arms supply by the United States.
Moreover, President Trump has allegedly asked Defense Secretary to present a $750-billion defense budget proposal for fiscal 2020, per a report by Politico. If proposed, this will reflect a notable rise of $20 billion from the initial proposal made by Pentagon.
Defense Stocks to Pick
The aforementioned factors along with the expansionary policy reform likely to be adopted by the U.S. administration should encourage investors to add top-performing defense stocks to their portfolio. Here we have shortlisted five defense stocks that have outperformed the broader Aerospace sector year to date and the same can be expected in 2019 as well.
Aerojet Rocketdyne Holdings AJRD, a Zacks Rank #1 (Strong Buy) stock, develops specialized propulsion systems and armament systems for space, defense, civil and commercial applications. The company’s shares have gained 12.2% year to date against the S&P 500’s decline of 0.8%. It delivered an average earnings surprise of 19.27% for the last four quarters and has an estimated long-term earnings growth rate of 5.50%.
Safran SA SAFRY, a Zacks Rank #1 stock, manufactures aircraft engine, rocket engine and other aerospace-components. The company’s shares have gained 19.8% year to date. The company has an estimated long-term
earnings growth rate of 11%.
Teledyne Technologies Incorporated TDY a Zacks Rank #1 stock, specializes in developing monitoring and control instruments and digital imaging sensors. The company’s stock has gained 12.7% year to date. It delivered an average earnings surprise of 12.92% in the last four quarters and has an estimated long-term earnings growth rate of 7.50%.
Boeing BA, a Zacks Rank #2 (Buy) stock, is the largest aircraft manufacturer with a varied range of defense products in its portfolio. The company’s shares have gained 10.4% year to date. It delivered an average earnings surprise of 28.01% in the last four quarters and has an estimated long-term earnings growth rate of 13.3%.
CAE Inc. CAE, a Zacks Rank #2 stock, manufactures simulation technologies and provides training services to aircraft manufacturers and defense customers. The company’s shares gained 4.8% year to date. It delivered an average earnings surprise of 4.28% in the last four quarters and has an estimated long-term earnings growth rate of 10%.
In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?
These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>
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
Safran SA (SAFRY) : Free Stock Analysis Report
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
CAE Inc (CAE) : Free Stock Analysis Report
United Technologies Corporation (UTX) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research