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Israel, Palestine Conflict Escalates: Defense Stocks to Gain

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The long-brewing conflict between Israel and Palestine has once again intensified in the recent times with rocket and missile exchanges between the two nations over the past week. The situation took a grave turn with communal unrest being observed between Jews and Arabs in Israel itself.

Per the latest reports, during earlier hours of May 17, Israel militants launched heavy airstrikes at multiple locations in Gaza city, with Palestine’s Hamas group targeting civilian areas in Israel with rockets in retaliation. No doubt the gainers from such conflicts are weapons manufacturers.   

America’s Role in the Conflict

It is quite a well-known fact that America has been a patronizer for Israel, dating back as long as 1948, when the United States was the first country to recognize Israel as a state. Since then, the two nations have been working to promote economic prosperity and regional security in Israel. In fact, as stated in a report by the U.S. Department of State, a long-standing U.S. priority is to promote a comprehensive and lasting solution to the Israeli-Palestinian conflict.

In an attempt to bolster Israel’s security, the United States signed a landmark agreement with the former in 2016, per which it pledged to offer military aid worth $38 billion to Israel over a period of 10 years. Per this aid, Israel can utilize only 26.3% of the foreign military fund (FMF) it receives from the United States on home-grown defense products. Israel has to spend as much as $1.2 billion per year on the advanced military equipment that only the United States can provide. Clearly, this bolsters the profits earned by the U.S. defense majors from international markets.

President Biden has voiced U.S. support for a negotiated two-state solution to the ongoing Israeli-Palestinian conflict, condemning the recent violence taking place in Israel and Gaza. Along with that he also expressed his "strong support" for Israel's right to defend itself against rocket attacks by "Hamas and other terrorist groups.”

Stocks to Gain

We may thus conclude that the following U.S. defense stocks, with strong presence in Israel, have solid growth opportunities given the dispute between Israel and Palestine.

Lockheed Martin (LMT - Free Report) offers its C-130 and F-16 aircraft to Israel that have been used by the Israel Air Force since the 1970s and 1980s. Israel is the owner of the largest fleet of F-16 fighters outside the United States. Moreover, Lockheed’s industrial collaboration with Israeli companies, at a volume of $1.45 billion, contributed to approximately 40 Israeli companies, most of which are in the defense industries, along with high-tech companies, venture capital funds and research and development institutions.

The Boeing Company (BA - Free Report) has worked in coordination with the Production and Procurement Directorate of the Ministry of Defense, as well with the Manufacturers’ Association of Israel, to train and develop 60 small and medium-sized (SME) on the path to becoming Boeing suppliers. Since 2018, Boeing has directed at least 35% of the contract value from Israeli government defense procurements to Israel-based companies and suppliers. For instance, Israel Aerospace Industries’ major structures work for Boeing’s F-15 program; avionics and spare parts for the V-22 Osprey, the T-38 Talon and T-45 Goshawk.

Raytheon Technologies’ (RTX - Free Report) Missiles & Defense along with Israel’s Rafael Advanced Defense Systems manufacturers Iron Dome Weapon System. Notably, 10 Iron Dome batteries protect the citizens and infrastructure of Israel. Raytheon and Rafael Advanced Defense Systems also co-manufacture David’s Sling System, which forms a crucial element of Israel’s multi-tier layered missile defense architecture to provide mid-tier regional missile defense. In addition to partnering on the system’s Stunner interceptor, Raytheon Technologies produces the system’s missile firing units.

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