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

Cutbacks or no cutbacks

The defense sector is usually immune to budget cutbacks. That’s because the safety of lives always comes first. Everything else – consumer spending, interest rates and health insurance – all come later. Also, politicians hate the thought of being blamed for being negligent with American lives. The best way to avoid that is not to cut back spending on defense.

Going forward

Shares of all three companies appear ripe for further gains in the near- term future. Northrop Grumman Corporation (NYSE:NOC)has just delivered the first of four AQS-24A airborne mine-hunting vehicles to the Japanese Maritime Forces. This deal represents a major milestone in the development of Japan’s military capabilities. A successful transition is likely to lead to further additional orders for Northrop. At a price-to-earnings of only 10 and price-to-sales of only 0.8, the market hasn’t priced any upside potential in Northrop Grumman Corporation (NYSE:NOC)’s shares.

When it comes to Lockheed Martin Corporation (NYSE:LMT), the future also seems rosy. The company just secured a $28 million contract from the Pentagon, maintaining software aboard Air Force C-5 Galaxy transport aircraft. At only 0.7 times book-to-price, Lockheed Martin Corporation (NYSE:LMT) seems to be suffering from the same discount mispricing at its rival, Northrop Grumman Corporation (NYSE:NOC).

Elbit Systems Ltd. (USA (NASDAQ:ESLT), the smaller of the three, hasn’t seen its best days. Israel is currently funneling all ot its F-35 aircraft orders through it. With the middle east looking the way it looks today…only more orders from Elbit Systems Ltd. (USA (NASDAQ:ESLT) are likely to follow.

The Fool plays defense

Very often, we tend to think of defense stocks as boring and uninteresting. The truth of the matter is that defense companies have immense barriers to entry, they are virtual monopolies and they enjoy a ongoing stream of government spending. In this uncertain economic environment, I believe that defense stocks are place to be.

Shmulik Karpf has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin and Northrop Grumman.

The article The Golden Era of Defensive Stocks originally appeared on Fool.com.

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