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3 Defense Stocks to Buy As North Korea, Trump Escalation Continues

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Companies with ties to defense spending have gained amid the nearly constant wave of missile testing from North Korea, escalating United Nation sanctions placed on the regime, and President Donald Trump’s unrelenting war of words against Pyongyang.

President Trump spoke for the first time at the United Nations General Assembly yesterday, where he addressed a range of issues, including North Korea, the Iran nuclear deal, and terrorism. In his speech, Trump once again threatened Kim Jong Un’s regime with force if Pyongyang does not back down from its nuclear aspirations and cease its tests.

“No one has shown more contempt for other nations and for the wellbeing of their own people than the depraved regime in North Korea,” President Trump said in his speech. “The United States has great strength and patience, but if it is forced to defend itself or its allies, we will have no choice but to totally destroy North Korea… It is time for North Korea to realize that the denuclearization is its only acceptable future.”

On top of the possibility of some type of military action in the Korean peninsula, a recent wave of mergers between big aerospace and defense companies has helped lift the industry.

United Technologies Corp (UTX - Free Report) recently struck a $30 billion agreement to buy Rockwell Collins Inc (COL - Free Report) , and earlier this week, Northrop Grumman (NOC - Free Report) announced its plan to buy Orbital ATK for $7.8 billion (also read: Northrop Grumman to Buy Orbital ATK in Major $7.8 Billion Defense Deal).

Now let’s take a look at some defense stocks and their fundamentals to see if investors might want to consider them during these tumultuous geopolitical times. 

1.       Engility Holdings, Inc. (EGL - Free Report)

Engility works with the U.S. government to provide systems engineering, high-performance computing, data analytics, and other services. The company has strong ties to the U.S. Department of Defense.

With a P/B ratio of 1.56, which is far better than the “Aerospace – Defense” industry’s 2.56, Engility is currently trading at a substantial discount to the industry—and the market as a whole. Value investors might also like Engility’s P/S ratio of 0.56.

According to our current Zacks Consensus Estimates, the company’s earnings are expected to pop 7.21% this quarter and jump 38.35% for the year. The company is currently a Zacks Rank #1 (Strong Buy) stock and scored a “B” grade for both Value and Growth in our Style Scores system. Overall, the stock earned an “A” VGM grade.

The company has received two positive earnings estimate revisions for its current quarter within the last 60 days. In that same time frame, Engility also received three positive revisions to its full-year estimates and two positive revisions for its next year estimates.

2.       Leidos Holdings, Inc. (LDOS - Free Report)

Leidos’ defense and intelligence sector helps provide geospatial and data analytics, cybersecurity, logistics, intelligence analysis, operations support, and much more. The company works with the Department of Defense and an array of other U.S. government agencies, as well as governments around the world. Leidos is currently a Zacks Rank #1 (Strong Buy) and sports a “B” grade for both Growth and Momentum in our Style Scores system.

The company’s 90.98% cash flow growth is eye-catching and helps to show that Leidos is on a strong growth trajectory. Based on our current consensus estimates, the company’s sales are expected to climb 33.64% this quarter and jump 45.50% for the year to hit between $10.18 billion and $10.32 billion.

Although Leidos has gained 37.91% over the past 52 weeks and rests near the top of its 52-week high, the company might still have room to keep growing this year. Within the last 60 days, Leidos has received three upward earnings estimate revisions for the full year and four for the following year.

3.       Huntington Ingalls Industries, Inc. (HII - Free Report)

Huntington is America’s largest ship making company, having built more ships than any other U.S. Navy ship maker. Huntington’s sales are projected to grow by 5.91% this quarter and 3.80% for the year. Based on our consensus estimates, the company’s earnings are expected to pop 22.20% in the current quarter and 14.19% for the year.

The company is currently a Zacks Rank #2 (Buy) and sports an “A” grade for both Value and Momentum, as well as a “B” for Growth in our Style Scores system. The stock is trading at 18.6x earnings, which marks a discount compared to the industry average and represents strong value overall. Huntington’s P/S ratio of 1.36 and 1.24 PEG ratio are also both solid.

Despite resting near its all-time high, Huntington stock still could have room for continued growth down the line. Huntington received four positive earnings estimate revisions for the current year and next year, all within the last 60 days.

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