US defense stocks on safer ground after midterm elections

The US defense sector took it on the chin during October’s selling pressure. There were many reasons for the move: Saudi Arabia, the midterm elections, lower government spending ambitions, potential changes on defense contract payment methods, and so on. It turns out that a split Congress and President Trump’s intent on keeping military spending high likely will keep good times going for the defense sector and for the military industrial complex.

Remember that the world is still a very unsafe place, and the midterm elections did little or nothing to change that. Issues are still out there regarding Syria and Iran, North Korea has reportedly cooled off on nuclear negotiations, the United States and China are in a trade war, and Russia and China are continuing to develop stronger weapons. With the U.S. budget set for the coming year, 2019 is likely to be a strong year on military and defense spending.

Post-midterm, the major defense stocks were almost unilaterally higher after the results were known. Admittedly, this was after a very solid gain in the Dow Jones industrial average and S&P 500 indexes, but the biggest fears about defense spending were voted on by the equity market as having been largely overblown.

Also consider is that the defense sector already was bouncing off its lows since the end of October. That also was with the market’s broader recovery. Here we have included trading history and consensus analyst target price data from Thomson Reuters, and we have even shown how much each major defense contractor is down from its highs earlier this year.

Aerojet Rocketdyne Holdings Inc.

(NYSE: AJRD) closed up $0.50 at $38.67 for a 1.3% gain after the midterms. The stock has a consensus analyst price target of $38.33 and a 52week trading range of $24.41 to $38.92. Note that it is down 0.6% from its 52-week high. Aerojet Rocketdyne is a relatively small company, with a $3 bln market cap, but it is emerging as the de facto winner as a supplier of technologically advanced propulsion systems for defense, commercial and space aircraft, and it is involved in armament systems and more.

Boeing Co.

(NYSE: BA), which has the largest civilian jet sales, on top of multiple defense operations, closed up $5.55 at $372.92 for a 1.5% gain on Wednesday. The stock has a consensus price target of $415.09 and a 52-week range of $259.56 to $394.28. Shares are actually down 5.6% from the 52-week high. Boeing is the only Dow Jones industrials component that comes exclusively from the aerospace and defense sector, and it leads in value with a $210 bln market cap.

General Dynamics

aerospace,

combat

Corp.

systems, (NYSE: GD) information is involved in systems and technology for many defense applications. It also has marine systems. Its shares recently closed up $2.83, or 1.6%, at $185.03. The stock has a 52-week range of $164.76 to $230.00, and shares were last seen down 19.6% from the high. The consensus price target is $220.58. General Dynamics has a market value of roughly $55 bln.

Kratos Defense & Security Solutions

L3

Technologies

Raytheon Co.

Inc.

Lockheed Martin Corp.

Northrop Grumman Corp.

Inc.

(NASDAQ: KTOS) closed up $1.78, or 13.5%, at $14.97. Note that this is just 0.2% below the 52-week high, after an unmanned drone system contract award and after a third milestone in a study for Air Force satellites. Kratos is also smaller, with a mere $1.5 bln market cap. The stock has a consensus price target of $14.71 and a 52-week range of $8.90 to $15.00.

(NYSE: LLL) is on its way to becoming even deeper into defense and intelligence operations with the merger of Harris. Its added $3.17, or 1.7%, to close at $194.49 on Wednesday. Shares are trading closer to the lower end of their 52-week range of $180.24 to $223.73, down 13% from the high. The stock has a consensus price target of $243.62.

(NYSE: LMT) is deep into missiles, tactical weapons, combat systems, aircraft and so on for the United States and its allies. Lockheed shares closed up $3.26 after the midterms, or 1.1%, at $309.82, with a consensus analyst target of $374.89. Its market cap is closer to $88 bln. The stock is down 14.7% from its 52-week high of $363.00 but still slightly off its 52-week low of $283.21.

(NYSE: NOC) shares recently tacked on $3.17 to close up 1.1% at $285.91. The stock has a consensus price target of $344.74 and a 52-week range of $251.66 to $360.88.

Note that shares are down almost 21% from the 52-week high, and the company has close to a $50 bln market cap. Northrop Grumman is involved in too many aspects of military and defense to easily describe, but it offers systems, autonomous systems, cyber efforts, space, strike, and modernisation to the U.S. government, its allies and other companies.

(NYSE: RTN) shares recently closed up $2.52, or 1.4%, at $187.32. The stock has a 52-week range of $165.00 to $229.75, and shares were last seen down 18.5% from the high. The consensus price target is $225.39. This diversified military and defense products company may be most commonly known for its role in the Tomahawk Cruise missile, and it is running at a record backlog with strong guidance for 2019. Its market cap is over $53 bln.

And lastly (BATS: ITA) last closed up $1.73, or 0.9%, to close at $201.34. Shares are trading closer to the higher end of their 52-week range of $177.12 to $218.83, down 8.0% from the high.

iShares US Aerospace & Defense ETF