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4 Defense Stocks to Buy as ISIS Conflict Intensifies

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French police conducted a raid on a Paris suburb, targeting the mastermind of last Friday’s terrorist attacks. Meanwhile, major indexes struggled to hold on to their gains in late afternoon trade on Tuesday following news that a friendly soccer match between Germany and the Netherlands was called off two hours before the start of play due to a possible terror threat.

Stocks of defense companies have gained since Friday’s attacks amidst rising international concern about the actions of the Islamic State (IS). Meanwhile, both France and Russia have attacked Syria since the incident. Defense stocks will make for good additions to your portfolio at a time when other equities aren't making major gains.  

International Response

France began its retaliation for the attacks, for which IS has claimed responsibility. An air raid was conducted on Raqqa in Syria in coordination with the U.S. armed forces. President Francois Hollande has called for an international alliance against the IS. Meanwhile, Russia said that it will cooperate with the French forces to step up attacks on Syria.

This comes after the first acknowledgement that a recent Russian jet crash in Egypt was caused by a bomb blast. On Tuesday, Russia increased attacks on areas of Syria held by the IS. The country’s air forces conducted their largest bomber raid in decades, using a number of cruise missiles

Last Friday’s attack on Paris has also led to verbal sparring between President Obama and the presidential candidates from the Republican Party. Obama’s opponents in the GOP have criticized his policy on the IS and questioned what they believe is a lack of leadership on the issue. The President has in turn accused his opponents of failing to come up with a credible alternative.

Defense Stocks Move Higher

Markets have remained largely unscathed by last Friday’s events and their aftermath. Indexes in Asia and Europe have suffered only a marginal decline. At the same time, the current placid state of the bourses means that the strong performance of defense stocks has not gone unnoticed.

The largest gainers from these sad incidents have been Lockheed Martin Corp. (LMT - Free Report) , Raytheon Co. (RTN - Free Report) and Northrop Grumman Corp. (NOC - Free Report) . These stocks have gained between 4% and 5.1% since Friday’s events.

This trend has been witnessed earlier, following the 9/11 attacks, helping Dow Jones to recover during the six months that followed. In recent times, analysts had predicted that these stocks would face a downturn following troop withdrawals from Afghanistan and Iraq.

But the ascendancy of IS has once again acted as a positive catalyst for these stocks. Since 2013, share prices of both Northrop Grumman and Lockheed Martin have doubled. In a related development, the U.S. State Department provided approval for the sale of weapons to Saudi Arabia to be used against the IS. Additionally, Kuwait is set to purchase fighter jets worth $3 billion from The Boeing Company (BA - Free Report) . 

Our Choices

The rise in geopolitical tensions in the Middle East will prove beneficial for defense stocks in the near future. Additionally, they are not vulnerable to China’s economic slowdown. They have also gained from the recent deal on the U.S. budget. 

This is why it may be a good idea to add such stocks to your portfolio now. We have narrowed down our search based on a good Zacks Rank and other relevant metrics.

Leidos Holdings, Inc. (LDOS - Free Report) provides science and technology solutions to the defense, engineering and health segments in the U.S. and other countries.

Leidos Holdings has a Zacks Rank #1 (Strong Buy) and projected growth for the current year is 6.4%. Its earnings estimate for the current year has increased 5.1% over the last 30 days. The stock has gained 4.1% over the past two trading days.

Huntington Ingalls Industries, Inc. (HII - Free Report) designs, builds and maintains nuclear and non-nuclear ships for the U.S. Navy and Coast Guard and provides after-market services for military ships around the globe.

Huntington Ingalls has a Zacks Rank #2 (Buy) and expected earnings growth of 20.7% for the current year. Its earnings estimate for the current year has increased 0.5% over the last 30 days. The stock has gained 3.4% over the past two trading days.

General Dynamics Corporation (GD - Free Report) engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems

General Dynamics has a Zacks Rank #2 (Buy) and its estimated growth for the current year is 14.8%. Its earnings estimate for the current year has increased 0.5% over the last 30 days. The stock has gained 1.6% over the past two trading days.                                            

Boeing Company is a premier jet aircraft manufacturer and one of the largest defense contractors in the U.S.

Boeing has a Zacks Rank #2 (Buy) and projected growth for the current year is 10%. It has a P/E (F1) of 17.39, lower than the industry average of 17.70. It has a PEG ratio of 1.55, lower than the industry average of 1.70. The stock has gained 2.5% over the past two trading days.

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