In a bid to exhibit North Korea’s escalating nuclear strength, President Kim Jong-Un fired an intermediate range ballistic missile on Sep 15, which flew over Japan's northern Hokkaido island before crashing in to the Pacific Ocean. Notably, this is the second time that Japan has come in North Korean missile’s targeting range within a month.
Following this, majority of the U.S. defense stocks rallied on Sep 15 as escalating cross-border tensions tend to boost demand for weapons. Evidently, S&P 500 aerospace and defense industry as well as the Dow Jones U.S. Aerospace and Defense industry indices inched up 0.6%.
North Korean administration rationalized the latest action as a move to reach “equilibrium” with the U.S. military and counter the nation’s increasing threats to curb North Korea’s military force. This seemed to be a direct challenge to the U.S. government.
Kim has not only threatened to “sink” the Japanese islands but also challenged Japan’s alliance with the United States. Concurrent to this, Japanese Prime Minister Shinzo Abe strongly criticized the act. Japan's chief government spokesman sought help from the nation’s allies – the United States and South Korea – as well as China and Russia, to jointly respond to this hostile act of North Korea.
Other Nations’ Response
The sixth nuclear test missile launched by North Korea has been strongly condemned by the United States, its ally South Korea as well as the United Nations Security Council. China and Russia, who are being allegedly considered as backing North Korea, also publicly condemned the launch.
Even though the latest missile flew over Japan, it is anticipated by analysts that North Korea’s real intention was to threaten the United States’ western Pacific territory — the province of Guam – that lies south of Japan. Notably, 7,000 U.S. troops are estimated to be at the military base in Guam with almost a third of the land controlled by the U.S. Army. It goes without saying that if North Korea succeeds in bombing this military base at Guam, the U.S. Army will suffer a huge blow.
The U.S. Secretary of State, Rex Tillerson was of the opinion that such provocative actions will lead to enhanced economic and diplomatic isolation of North Korea. He urged China and Russia to express their intolerance toward such hostility of North Korea, considering the fact that China is its major oil supplier while Russia is the largest employer of its forced labor.
United Nations Acts Stern
Earlier last week, the UN Security Council sanctioned a ban on North Korea’s textile exports and provided a ceiling on crude oil imports. Western diplomats viewed the move as a step toward international unity in the face of North Korea’s repeated provocative missile tests. However, Pyongyang’s latest missile launch over Japan once again jolted international stability.
In retaliation, the US ambassador to the UN, Nikki Haley and the national security advisor, HR McMaster, on behalf of the U.S. government warned North Korea that the United States may take up stringent military actions if new sanctions fail to deter North Korea’s growing fanatic militant activities.
In a latest update, U.S. President Trump and his South Korean counterpart Moon Jae-in, in a shared phone call on Sep 17, pledged to work in tandem with the international community to implement the latest UN Security Council resolution. Nevertheless, considering Kim’s consistent missile tests it’s highly unlikely that the tension will ease in the near term.
Defense Stock Gainers
Since rising geopolitical tensions have always prompted the U.S. government and its allies to strengthen their arsenals, defense stocks receive impetus whenever such cross-border altercations take place. Consequently, we have zeroed in three defense primes that witnessed more than 1% gain in their share price following the sixth missile launch. Banking on the below-mentioned bullish trends boasted by these stocks, investing in them seem to be a prudent choice.
The Boeing Company (BA - Free Report) is the largest aircraft manufacturer in the world in terms of revenue, orders and deliveries, and one of the largest aerospace and defense contractors. Apart from manufacturing top-rated commercial and military aircraft, it also offers strategic missile and defense systems as well as command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR).
The company reported a positive earnings surprise of 9.91% in the last quarter. The Zacks Consensus Estimate for its current-year earnings improved 6.1% over the last 60 days. It has a long-term earnings growth rate of 13%.
In the last trading session, Boeing’s share price gained 1.5%. The company currently carries a Zacks Rank #2 (Buy).
Orbital ATK, Inc. (OA - Free Report) is a premier aerospace and defense company, which designs, manufactures and delivers launch vehicles and associated propulsion systems, satellites and related components and services, and composite aerospace structures. It also supplies ammunitions and related accessories to the U.S. government agencies.
The company delivered a positive earnings surprise of 7.59% in the last quarter. The Zacks Consensus Estimate for its current-year earnings improved 2.3% over the last 60 days. It boasts a long-term earnings growth rate of 9%.
In the last trading session, Orbital ATK’s share price gained 1.5%. The company presently carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Aerojet Rocketdyne Holdings, Inc. (AJRD - Free Report) focuses on developing military, civil and commercial systems and components for the aerospace and defense industry. It manufactures specialized propulsion systems as well as armament systems for the aerospace and defense industry.
The company posted a positive earnings surprise of 128.57% in the last quarter. The Zacks Consensus Estimate for its current-year earnings improved 17.8% over the last 60 days. It flaunts a long-term earnings growth rate of 8%.
In the last trading session, Aerojet Rocketdyne's share price gained 1.3%. The company currently sports a Zacks Rank #1.
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