President Trump revealed a reversal of strategy in Afghanistan, promising to “fight to win” instead of withdrawing entirely. He vowed to ramp up U.S. engagement in Afghanistan, the country’s longest war to date. He added that moving troops away from Afghanistan would create a “vacuum”, which terrorists would “instantly fill”. But, he refrained from revealing specific troop numbers or measures of success.
Defense stocks moved north on Trump’s Afghanistan speech, while such stocks have nearly doubled the S&P 500’s performance since his election victory. His commitment to swiftly increase military spending boded well for defense stocks. This calls for investing in such stocks for solid gains.
Trump Announces More War in Afghanistan
In a much awaited speech, Trump announced that he won’t pull out troops from Afghanistan and is committed to a plan at winning the nation’s longest war, which is now in its 17th year. In other words, he is introducing a dramatic, new offensive in Afghanistan, which will integrate diplomatic, economic and military power. But, Trump refrained from divulging details on troop deployments or specific dates of operations for security reasons. He did acknowledge that his “original instinct was to pull out”, which was once an important campaign pledge before he became the President.
Trump mentioned that the war will crush al Qaeda and prevent Taliban from taking over Afghanistan. He will urge NATO forces to join hands and support his new strategy. He also said that Pakistan is a terrorist hotbed and has harbored militants. Afghan Taliban and Haqqani network has found safe haven in Pakistan for the launch of multiple attacks on neighboring Afghanistan. He warned Islamabad of consequences if its government doesn’t take sweeping steps to eradicate such terrorist organizations. He stressed that Pakistan needs to have stronger ties with India in war against terrorists.
Finally, he concluded that “terrorists take heed. America will never let up until you are dealt a lasting defeat. Under my administration, many billions of dollars more is being spent on our military. And this includes vast amounts being spent on our nuclear arsenal and missile defense. In every generation we have faced down evil, and we have always prevailed”.
Big Money for Defense Contractors Tied to James Mattis
General Dynamics Corporation (GD - Free Report) stands to gain handsomely from Trump’s Afghanistan “surge’’. And why so? Prior to joining the Trump administration, Defense Secretary James Mattis was an “independent director” of the multinational defense contracting behemoth. He was paid $594,369 by the company between 2013 and 2016.
It was during that time, the company boasted of receiving a $216 million order from the U.S. Army to build a “Warfighter Information Network” system. It was immensely successful in serving the army in Afghanistan. The company also received multi-million dollar payments for providing soldiers in Afghanistan items like Foxhound vehicles to IT management services.
And now with Mattis holding a far more operational role, it can be expected that General Dynamics will benefit more from the Afghan war. Mattis now looks into more lucrative Pentagon contracts, which are positioned to even get more lucrative in the light of Trump’s declaration to deploy more troops in Afghanistan.
Defense Stocks Rise on Trump’s Speech
Defense stocks rose broadly following Trump’s remarks, with the iShares U.S. Aerospace and Defense ETF (ITA) rising 1.2% on Aug 22. Major defense stocks like Northrop Grumman Corporation (NOC - Free Report) , Lockheed Martin Corporation (LMT - Free Report) and Boeing Co (BA - Free Report) gained 1.9%, 0.9% and 1.7%, respectively. Northrop and Boeing were also awarded contracts for intercontinental ballistic missile system replacements.
In fact, Trump’s pledge to significantly increase federal spending related to national security was cheered by Republicans and has helped defense and aerospace stocks scale higher. He had promised to seek a $54-billion hike in spending on tanks, ships and weapon systems. The defense budget will climb 10%, according to the White House, while Trump recommended $30 billion in supplementary military spending for this year (read more: 5 Stocks to Buy as Trump Promises to Spend Big on Defense).
5 Best Defense Stocks to Buy Now
As Trump’s Afghanistan strategy gives defense stocks a boost, investing in the same seems a prudent choice. We have, thus, selected five solid defense stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Boeing Co is an aerospace company. The company's segments include Commercial Airplanes, Defense, Space & Security (BDS), such as Boeing Military Aircraft (BMA), Network & Space Systems (N&SS) and Global Services & Support (GS&S), and Boeing Capital (BCC). Boeing has a Zacks Rank #2. The Zacks Consensus Estimate for its current year earnings increased 5.9% over the last 60 days. The company is expected to gain 15.1% in the next quarter, while it has surged 67.6% since the Election Day, Nov 8.
Northrop Grumman Corporation provides products, systems and solutions in autonomous systems; cyber; command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR); strike, and logistics and modernization. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current year earnings increased 2.1% over the last 60 days. The company is expected to gain 10.6% in the next quarter, while it has surged 18.6% since the Election Day.
Huntington Ingalls Industries Inc (HII - Free Report) is a military shipbuilding company and a provider of professional services to partners in government and industry. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current year earnings increased 2.6% over the last 60 days. The company is expected to gain 22% in the current quarter, while it has surged 39.5% since the Election Day. You can see the complete list of today’s Zacks #1 Rank stocks here.
Leidos Holdings, Inc. (LDOS - Free Report) provides technology and engineering solutions in the defense, intelligence, homeland security, civil, and health markets in the United States and internationally. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current year earnings increased 5.5% over the last 60 days. The company is expected to gain 10% in the next quarter, while it has surged 26.6% since the Election Day.
Aerojet Rocketdyne Holdings, Inc. (AJRD - Free Report) designs, develops, manufactures, and sells aerospace and defense products and systems in the United States. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current year earnings increased 17.8% over the last 60 days. The company is expected to gain 13.3% in the next quarter, while it has surged 72.9% since the Election Day.
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