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Trump to Pass $717B Defense Budget Bill: Stocks to Watch

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President Donald Trump will travel to Fort Drum, New York, on Aug 13, to sign next year’s defense budget bill, which was promptly approved by Congress on Aug 1. The fiscal 2019 defense budget of $717 billion — the largest budget allotted to defense in U.S. history — gives a sense of the country’s seriousness in maintaining a solid security cover, when it has China and Russia as rivals.

The passage of the John S. McCain National Defense Authorization Act (“NDAA”) for fiscal 2019 well ahead of the budget bill, which is still pending, signifies the importance it holds amid armed conflicts in the Middle East and the growing trade spat with China.

Post approval of the defense bill, the Department of Defense said in a statement that the objective of the defense budget is to rebuild the United State’s military, “increase lethality,” reinforce the nation’s “alliances and partnerships” and modify the way U.S. maintains its business relationships.

While terrorism remains the key issue, the focus has shifted to restrain China and Russia, and re-establish the United State’s military dominance.

These developments could act as a catalyst for defense stocks.

Breakdown of Defense Budget 2019

Pentagon’s base budget holds $616.9 billion, overseas contingency operations have been authorized $69 billion and nuclear weapons programs hold $21.9 billion in the proposed defense budget. Also, service member compensations have been raised by 2.6%, marking the biggest increase in nine years.

The budget also proposes to increase the number of its active-duty military strength by 15,600 along with measures to strengthen the country’s cyber defense mechanisms, and give the readiness of U.S. Cyber Command utmost importance. The defense budget also aims to provide waiver respites to chief U.S. allies from certain sanctions related to Russia under Countering America's Adversaries Through Sanctions Act (“CAATSA”).

The Pentagon plans to purchase 77 F-35s (Joint Strike Fighters) for $7.6 billion. Other purchase plans include 68 UH-60s (Black Hawk Helicopters) for $85 million, B-21 (Raiders), 60 AH-64E Apache Helicopters, 24 F/A-18E/F Super Hornets, 15 KC-46A Tankers, 10 P–8A Poseidons, 4 E–2D AHE Advanced Hawkeyes, 7 V–22 Ospreys, 8 CH-53K King Stallion Helicopters, 3 MQ-4 Triton Unmanned Aerial Vehicles, combat ships, submarines, destroyers, oilers, ground and space systems.

Missile Defense Agency receives $140 million for developing space sensing projects, critical directed energy and hypersonic defense. U.S. Army’s missile defense systems have been allotted $284 million.

Given the robustness of the defense budget for fiscal 2019, good gains in defense stocks may be anticipated. Here are a few stocks to look out for.

Stocks in Focus

Lockheed Martin Corporation (LMT - Free Report) manufactures F-35s and is a Zacks Rank #3 (Hold) company. Lockheed Martin’s major business wings are aeronautics, missiles and fire control, rotary and mission systems and space systems. The company’s Zacks Consensus Estimate for earnings has seen an upward revision of 5.7% for the current year in the last four weeks.

Northrop Grumman Corporation (NOC - Free Report) manufactures B-21 bombers and carries a Zacks Rank #3. Over the last 30 days, Northrop Grumman’s Zacks Consensus Estimate for earnings has seen an upward revision of 4.2% for the current year.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Oshkosh Corporation (OSK - Free Report) is a key manufacturer of access equipment, specialty vehicles and truck bodies that are used primarily in defense, refuse hauling, concrete placement, fire and emergency etc. The Zacks Rank #2 (Buy) company’s Zacks Consensus Estimate for earnings has seen an upward revision of 4.3% for the current year over the last 30 days.

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