In the current bear market, the best defense is, well…defense stocks. Year to date, the Dow Jones US Select Aerospace and Defense Index is up 7.18% in 2022 versus a 19.9% loss for the S&P 500 index.* Reason: Rising economic and geopolitical risk around the world caused a flight to safety among investors. Weapons makers offer steady cash flows…profit visibility because of long-term contracts…and the ability to pass along rising costs to government customers in an inflationary environment. The defense sector is more than just a defensive play for 2023 and beyond. Wall Street is underestimating the growth trajectory of these manufacturers as the US and foreign nations ramp up military spending in response to global tensions. Also, the Pentagon has embarked on a multiyear spending cycle to modernize its badly outdated arsenal, such as replacing the Air Force’s aging bomber fleet with the B-21 Raider and retiring the Navy’s Ohio-class ballistic missile submarines in favor of Columbia-class nuclear subs.
Winning defense stocks now…
General Dynamics (GD) is a major manufacturer of combat vessels, including the new Columbia-class nuclear submarines. The company has raised its dividend 25 years in a row. Recent yield: 2.2%.
Lockheed Martin (LMT). The stock soared 40% last year but has further upside. It has backorders from the US and its allies for 3,100 F-35 Lightning II stealth fighter jets through 2035. Recent yield: 2.37%.
Northrop Grumman (NOC) is developing the new B-21 stealth bomber and Sentinel, the US Air Force’s next-generation intercontinental ballistic missile system. Recent yield: 1.28%.
*Performance figures are through December 19, 2022.