The U.S. Aerospace and Defense industry has always stood strong, courtesy of the ever-growing demand for defense equipment and rapid technological advancements.
Impressively, the Zacks Aerospace & Defense industry has risen 17.3% compared with the S&P 500’s gain of 15.2% year to date.
Let’s take a closer look at the factors that have been backing the stellar performance of defense stocks so far this year.
Global Tensions Rife
In the wake of Russia's annexation of Crimea, tensions in Poland escalated to such severe levels that the country is now willing to shell out $1.5-$2 billion to the United States for securing U.S. troops. Back in March 2018, Poland had inked an agreement with the United States to purchase Raytheon’s (RTN - Free Report) Patriot missiles for $4.8 billion.
Moreover, orders for a wide variety of defense-related products from nations in the Middle East like Saudi Arabia, Kuwait, Bahrain, Israel and Turkey are lately boosting defense stocks. A massive $110-billion arms deal signed by President Trump with Saudi Arabia this May, which also has the potential to touch $350 billion in the next 10 years, is another example.
Landmark Defense Authorization Bill Approval
The month of August saw Trump give the final nod to the fiscal 2019 National Defense Authorization Act (NDAA), which sanctions a spend of $717 billion on security. This authorization is considered the most significant investment in the U.S. military force. No doubt, it was cheered by investors keeping a watch on the defense space.
Earnings Picture Bright
Many sector giants recorded positive earnings growth in the second quarter of 2018. Notably, 90% of the Zacks Aerospace stocks topped earnings and 70% exceeded revenue expectations. Undoubtedly, such encouraging releases have boosted investors’ optimism in these stocks.
Stocks to Pick
Considering the impressive prospects, we mention five stocks that have outperformed the sector and the S&P 500 year to date. These stocks have a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) along with a few other strengths.
AeroVironment, Inc. (AVAV - Free Report) develops and supplies unmanned aerial vehicles and tactical missiles. The company currently sports a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings moved up 22.5% over the last 90 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock has gained 94.4% on a year-to-date basis, outperforming the S&P 500’s gain of 14.2% and its sector’s rise of 23.8%.
Ducommun Incorporated (DCO - Free Report) manufactures components and assemblies principally for domestic and foreign commercial and military aircraft and space programs. It currently holds a Zacks Rank #2. The consensus estimate for its current-year earnings rose 24.3% over the last 90 days.
The stock has gained 19.7% year to date.
FLIR Systems, Inc. (FLIR - Free Report) offers infrared and imaging solutions for military and search and rescue applications. It currently holds a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings moved up 2.78% over the last 90 days.
The stock has gained 46.8% on a year-to-date basis.
Heico Corporation (HEI - Free Report) is primarily engaged in certain niche segments of aviation, defense, space and electronics. It currently holds a Zacks Rank #2. The consensus estimate for its current-year earnings moved 2.73% north over the last 90 days.
The stock has also gained 57.7% year to date.
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