Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

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

© 2005-2019 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