Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Northrop Grumman Corporation (NOC), Lockheed Martin Corporation (LMT), Elbit Systems Ltd. (USA (ESLT): The Golden Era of Defensive Stocks

Page 1 of 2

For the past few years, some analysts warned against investing in defense contractors. Their thinking is that the U.S. government will “get religion” and reduce spending… even on the defense industry, which is in enough foreign wars that it should be called the “offense industry.” So it’s time to sell defense stocks and jump into sectors offering better growth prospects, right?

Wrong.  Unless you like taking risks, having the equities of big military suppliers in your portfolio is almost always a smart move.  Although politicians love to bash the defense industry, its stocks offer unique characteristics that most investors can’t obtain any other way. And it shows in the performance of defense stocks.

Northrop Grumman Corporation (NYSE:NOC)

The market has spoken

The chart below displays the performance of “offense” contractors Northrop Grumman Corporation (NYSE:NOC), Lockheed Martin Corporation (NYSE:LMT), Elbit Systems Ltd. (USA (NASDAQ:ESLT) over the past 12 months. These companies produce things like jet fighters, missiles, radar systems, and unmanned aerial drones. They rely almost entirely on government spending. Last year, Northrop got 90% of its business from the U.S. government. For Lockheed, that number was 82%. Together, these two companies alone raked in more than $60 billion in government money last year.

The red line above shows the performance of Northrop Grumman Corporation (NYSE:NOC), the blue line shows the performance of Lockheed Martin Corporation (NYSE:LMT), and the green line stands for Elbit Systems Ltd. (USA (NASDAQ:ESLT). For Comparison purposes, I added the S&P 500 in purple to serve as a benchmark. As you can clearly see, over the past year – it’s been highly profitable to play defense. All three defense stocks have climbed by 30% to 40% a year, easily besting the S&P. Last week, these three stocks broke out to their highest levels in more than four years. Despite claims to the contrary, no cutbacks are affecting these stocks.

The unique traits of the defense industry

Let’s take a look at three reasons why defense stocks are now booming and are more than likely to continue their uptrend.

Counter – cyclical

Right now, China and Europe are slowing down and the possibility of another Middle East war looms as Israel prepares to attack Iran’s nuclear complex. If Israel strikes, that will probably lead to Iranian missile launches, action in the Strait of Hormuz, spiking oil prices and other developments that depress the shares of most commercial companies. But not defense shares. When war looms, demand for the goods and services of military suppliers rises. That’s why defense stocks are regarded as counter- cyclical.

Always in demand

Within the domestic defense market, industry has evolved in a way that makes it highly resilient to softening demand.  When the Cold War ended, the top tier of the sector consolidated into a handful of military conglomerates that do business with all the military services in both hardware and services.  Waning demand in any particular market segment presents little threat to these sprawling enterprises. The industry is so concentrated that there often are only one or two qualified suppliers of key military items, and politicians usually are determined to keep it that way.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!