Best Defense Stocks To Buy And Watch For Today And The Future

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The best defense stocks have long-term programs as well as footholds in key emerging priorities for the Pentagon and U.S. allies around the world.




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As of December 2020, here are the best defense stocks with large market caps and high volumes, based on IBD’s ratings system:

Boeing Stock

Boeing (BA) is known for its commercial jets, but its defense and space programs accounted for $6.85 billion in the third quarter. In 2019, defense revenue accounted for $26.2 billion, down 1% from its 2018 total. The aerospace giant has a market cap of over $124 billion, down from $180 billion in January but off mid-year lows.

The recent market cap rebound came mostly from the commercial side as the Federal Aviation Administration ungrounded Boeing’s troubled 737 Max on Nov. 18, while two Covid-19 vaccines have received emergency authorization.

Boeing Super Hornets
F/A-18 Super Hornets. (Boeing)

Boeing has legacy fleets of fighter aircraft like the F/A-18 and F-15, which remain in production and have updates in the works. The Air Force is buying upgraded versions of the F-15 as well. In July, Boeing received the first order in what could be a $23 billion contract to build F-15EX fighters.

Boeing is also building the T-7 Red Hawk trainer jet for the Air Force, the MQ-25 Stingray aerial-refueling drone for the Navy, and the KC-46 refueling tanker for the Air Force. Its P-8 Poseidon maritime surveillance aircraft for the U.S. Navy has also proved popular among allied navies too.

Meanwhile, the company is investing heavily in space and is building the Crew Space Transportation-100 Starliner to ferry astronauts to the International Space Station as well as the massive Space Launch System, which will be the most powerful rocket ever. But both projects have suffered major delays. By contrast, rival SpaceX has already sent up a successful crewed test flight and operational crewed flight to the ISS.

But investors should be cautious of its weak CAN SLIM metrics. Boeing stock has an IBD Composite Rating of 36 and an EPS Rating of 18 as troubles continue in its commercial unit.


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Northrop Grumman Stock

Northrop Grumman’s (NOC) revenue was $9 billion in Q3 and $33.8 billion in 2019. Its market cap is $50 billion.

Shares have formed a messy consolidation since April. Northrop stock has an official buy point of 385.10. But it has shown resistance around 350, according to MarketSmith chart analysis. The stock has a Composite Rating of 45 and an EPS rating of 81.

Northrop’s B-21 stealth bomber. (U.S. Air Force)

The defense company is a major subcontractor on Lockheed’s F-35 and produces drones such as the Global Hawk, while its purchase of Orbital ATK boosted its space offerings.

Another big moneymaker will be the B-21 stealth bomber. The Air Force plans to buy 80 to 100 planes to replace Cold War-era Boeing B-52s.

The Pentagon hasn’t disclosed a comprehensive cost estimate, saying U.S. adversaries would be able to infer the B-21’s capabilities. But so far, the Air Force has put development costs at $23.5 billion, and analysts estimate the total acquisition price tag could hit $80 billion.

On July 30, CEO Kathy Warden said the B-21 is scheduled to enter low-rate production in 2022 after reaching key developmental milestones. The first prototypes are under construction.

Northrop also is the contractor for the Air Force’s Ground Based Strategic Deterrent (GBSD), which will replaced aging intercontinental nuclear ballistic missiles. The total program is valued at $85 billion to $100 billion, marking another potential windfall for NOC stock.


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Lockheed Martin Stock

Lockheed Martin (LMT) is the biggest defense stock and briefly became the largest U.S. aerospace company by valuation, as Boeing’s market cap fell amid the 737 Max grounding. Lockheed’s revenue was $16.4 billion in Q3 and $59.8 billion in 2019. The company has a market cap of $98 billion.

Lockheed stock carries a Composite Rating of 52 and an EPS score of 94. Shares sold off in February and March but the stock is now forming a flat base with a 402.48 entry point. But shares have fallen below the key 200-day and 50-day lines.

Lockheed Martin F-35
F-35 stealth fighter. (Lockheed Martin)

The F-35 Joint Strike Fighter will be a key moneymaker for Lockheed for years to come. Its acquisition price tag is $400 billion, making it the most expensive Pentagon program ever. The stealth fighter is also seen as the “quarterback” in the Pentagon’s emerging warfighting strategy to counter near-peer rivals like Russia and China.

The U.S. and its allies have 3,100 F-35s on order through 2035, making Lockheed one of the best defense stocks for steady, long-term revenue. Currently, the fifth-generation jet accounts for 25% of Lockheed’s total revenue. Management expects the program’s revenue will grow at a faster rate than the overall top line through the end of the decade.

And more allies want to buy the advanced jet. In October the State Department notified Congress that it approved a sale of up to 50 F-35s to the United Arab Emirates opening up the possibility of  more sales in the region.

Lockheed also produces Sikorsky military and civilian helicopters, as well as a variety of missiles and fire control systems. Its Terminal High Altitude Area Defense missile-defense system has seen a surge in foreign orders.

Meanwhile, Lockheed has key hypersonic weapons contracts in the works. In September, the Defense Advanced Research Projects Agency said that Hypersonic Air-breathing Weapon Concepts (HAWC) from Lockheed and Raytheon successfully completed captive carry tests.

In space, Lockheed has secured major satellite deals and is developing the deep-space Orion spacecraft for NASA. Its joint venture with Boeing, United Launch Alliance, provides launch services for the Pentagon.


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Raytheon Technologies Stock

Raytheon and United Technologies completed their $100 billion all-stock merger in early April to become Raytheon Technologies (RTX). The new company has a market cap of over $106 billion after spinning off the Carrier and Otis businesses. The company reported Q3 revenue of $14.75 billion.

Raytheon stock has a Composite Rating of 31 and an EPS score of 24.

Raytheon's Patriot Missile System
Patriot missile defense system. (Raytheon)

Missile-defense systems are in high demand, making Raytheon one of the best defense stocks as threats from China, Russia, North Korea and Iran become larger priorities for the U.S. and its allies.

Raytheon builds the Patriot missile defense system along with the interceptors for the Aegis air defense system.

The company also builds an array of missiles and munitions, perhaps most notably the Tomahawk cruise missile. Raytheon is a leader in radar systems and electronic warfare. It is also ramping up its cyberdefense capabilities and expanding its hypersonic technology.


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General Dynamics Stock

General Dynamics’ (GD) revenue was $9.4 billion in Q3 and $39.3 billion in 2019. Its market cap is over $44 billion.

General Dynamics stock has a Composite Rating of 39 and EPS Rating of 64. GD stock started forming a flat base earlier this year with a 193.86 entry point before that pattern broke down amid the broader selloff and stocks further plunged on the coronavirus crash.

Shares have since rebounded above 200-day lines and are currently in buy range after breaking out of a double bottom base with a 147.07 entry point, finding support at the 50-day line.

M1 Abrams tank. (StockPhotosLV/Shutterstock)

The company is one of the shipbuilding defense stocks. It’s part of a team that’s building Littoral Combat Ships, and its Electric Boat unit makes the Virginia-class and Columbia-class submarines.

In November, the Navy award GD a $9.5 billion contract to build the first Columbia-class sub and start advance work on the second sub.

GD’s Bath Iron Works also builds Arleigh Burke-class destroyers and Zumwalt-class next-generation destroyers. The NASSCO unit also builds auxiliary and support ships for the Navy, plus oil tankers and dry cargo carriers for commercial operators.

General Dynamics is a top provider of land weapons systems too, building Abrams tanks, the Stryker family of vehicles, and Light Armored Vehicles.

The company’s Gulfstream business jets lead the aerospace segment, which includes a business aviation services division.

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