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4 Defense Stocks to Buy on the Dip After Trump's Comments

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President-elect Donald Trump seems to be waging a war on defense contractors of late. In yesterday’s Twitter post, Trump called Lockheed Martin Corp.’s (LMT - Free Report) F-35 an ‘out of control’ cost project. This caused a sudden sell-off in the company’s shares, resulting in a 2.5% decline in the stock price.

Note that this is the second time that a defense prime has been criticized for allegedly high project costs by this real estate mogul. Last week, Trump slammed the Boeing Company (BA - Free Report) on Twitter for developing a highly expensive version of the Air Force One and urged the federal government to cancel its order with Boeing for the jets owing to ‘out of control’ expenses.

Trump’s startling victory in the Presidential election had sent the majority of defense stocks rallying in November, based on the hawkish comments he made about military spending during his campaigns. However, the optimism has disappeared given the President-elect’s recent comments.

In fact, these comments led the defense stocks to stumble and in turn nearly 1% drop was observed in both the S&P 500 Aerospace & Defense (Industry) and the Dow Jones U.S. Aerospace & Defense Indices.

On the bright side, defense is essentially a non-cyclical sector, which enabled it to remain mostly stable over the years. So, it is probably safe to assume that the ongoing turmoil in the sector is going to be short lived. This means that now would be a good time to pick a few stocks from this industry, given that they will not only be trading cheap but will also have a high growth potential for the long run.

Stocks to Pick

Here, we have selected four stocks from the defense space, all of which have witnessed a decline of 2% or more in their share price over the last week. However, they all carry a Zacks Rank # 2 (Buy) or #3 (Hold) and a VGM Score of ‘A’ or ‘B,’ and have scored a positive earnings surprise in last reported quarter.

Ducommun Inc. (DCO - Free Report)

This Carson, CA-based company offers innovative manufacturing solutions for customers in the aerospace, defense and industrial markets. It has a Zacks Rank #2 and VGM Score of ‘A.’ You can see the complete list of today’s Zacks #1 Rank stocks here.

Moreover, the company delivered a positive earnings surprise of 15.79% in the last reported quarter. Ducommun’s stock has lost 3.6% over the last week and 2.3% in the last trading session.

Lockheed Martin Corp.

This Bethesda, MD-based corporation is the Pentagon’s largest defense contractor. It has a Zacks Rank #3 and a VGM Score of ‘B’. In the prior quarter, the company delivered a positive earnings surprise of 26.22%. Lockheed Martin’s stock slipped 2.9% during the last week and 2.5% in the last trading session.

Kratos Defense & Security Solutions, Inc. (KTOS - Free Report)

This San-Diego, CA-based company is a mid-tier government contractor, which focuses on unmanned systems, satellite communications, microwave electronics, cyber security/warfare, missile defense and combat systems. It has a Zacks Rank #3 and a VGM Score of ‘B’. In the previous quarter, the company delivered a positive earnings surprise of 114.29%. Kratos Defense’s stock dipped 2.8% during the last week and 0.4% in the last trading session.

Raytheon Company

This Waltham, MA-based company is a technology and innovation leader that specializes in defense, civil government and cybersecurity solutions. It has a Zacks Rank #3 and a VGM Score of ‘B.’ Further, in the last reported quarter, the company delivered a positive earnings surprise of 9.15%. On the other hand, Raytheon’s stock had deteriorated 2% during the last week and 1.7% in the last trading session.

Conclusion

The stage is set for a likely hike in interest rates by the Federal Reserve, with a Federal Open Market Committee (FOMC) meeting scheduled for tomorrow. Note that the Fed considers raising interest rates only when the economy exhibits strength, which is evident from an increased real GDP in the third quarter, low unemployment rate in recent times and an improving U.S. dollar.

Favorable economic conditions would surely provide a major boost to defense companies in the country. Importantly, it would indicate that the impact of Trump’s comments is only momentary.

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