Playing defense

Defense companies expect procurement to slow while government employees work from home or are distracted by the ongoing pandemic. They may face factory shutdowns, too, if local jurisdictions recommend social distancing. But the demand for weapons hasn’t changed — and the government is still a willing buyer. So consider General Dynamics (NYSE: GD) for your portfolio.

General Dynamics has been an underperformer among defense stocks in recent years because of its Gulfstream business jet unit. The business-jet market never recovered from the 2008-2009 recession. But the company has a solid backlog of defense contracts, including landing the largest shipbuilding contract in history in December. Its shipyards are responsible for the bulk of the nation’s nuclear submarines, including the forthcoming Columbia-class ballistic missile submarine, a key cog in the U.S. military’s nuclear deterrence strategy.

In addition, General Dynamics’ huge government information technology business could benefit from the pandemic if government agencies need to upgrade their tech systems to deal with many additional remote workers.

The company was recently trading with a forwardlooking price-to-earnings (P/E) ratio in the low teens, and its dividend yield was about 2.8%. This could be a difficult six-month period to hold the stock, assuming the economic slowdown continues into the second half of 2020 (at least), but for patient investors, General Dynamics looks poised to pay off over the long run.