Sales of U.S. military equipment to foreign governments increased more than 33% to about $55.6 billion in the last fiscal year (ended Sep 30), Reuters reported earlier this week. Easing of restrictions by the U.S. government is leading the uptick in U.S.-manufactured military equipment purchases worldwide, according to a U.S. official’s statement to Reuters.
The Trump administration’s “Buy American” executive order signed in April 2017 helped relax restrictions on arms deals, which encouraged the U.S. weaponry industry to enhance tentacles overseas. This increase in arms sales is also being driven by rising global conflicts.
While the United States already dominates the world weapons market, President Donald Trump wants the country to strengthen its position further as the largest global weapons trader.
Therefore, it would be a good idea to invest in some defense stocks that are well positioned to benefit from this trend.
Global Disputes Prompting Weapon Sales
In addition to looser restrictions, global unrest is a major trigger for countries to invest more in security mechanisms. Even the United States is fortifying its defenses as evident from the allotment of a much larger defense budget for fiscal 2019. The robust $717 billion budget reflects the nation’s seriousness about maintaining a strong security cover.
Impending U.S. sanctions on Iranian oil from Nov 4 have given rise to conflicts in the Middle-East. Saudi Arabia, a major U.S. ally that has turbulent relations with Iran, is stocking up on high-end U.S.-manufactured military weapons which include stand-off land attack missiles, CH-47 Chinook helicopters, threat detection aerostats, Abrams tank upgrades and Bradley infantry fighting vehicles.
According to a Stockholm International Peace Research Institute report released in March, Saudi Arabia, United Arab Emirates and Australia were the top importers of American weaponry during 2013-2017. American arms sales have increased significantly since then.
Defense Stocks to Buy
Given this trend, betting on the stocks of some of the largest U.S. arms contractors could be a good idea. We have handpicked three such stocks that are top ranked and well positioned to benefit from the trend.
Raytheon Company (RTN - Free Report) is a technology and innovation giant that offers products and services to defense and other government markets. Their advanced and integrated products, solutions and services are implemented in cyber intelligence, cyber security, mission support and communications etc. Raytheon carries a Zacks Rank #2 (Buy). The company’s shares have gained 1.7% year to date and its earnings are expected to grow 30.3% for the current year.
Lockheed Martin Corporation (LMT - Free Report) is a security and aerospace company that serves both domestic and international customers. The company researches, designs, develops, manufactures, integrates and sustains technologically advanced products, services and systems. The company bears a Zacks Rank #2. Lockheed Martin’s earnings are expected to grow 27.6% for 2018 and its shares have gained 1.6% since the beginning of this year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Northrop Grumman Corporation (NOC - Free Report) is a global security company that delivers innovative products, systems and services. The company deals in autonomous systems, cyber command, control, surveillance, intelligence, communications and computers etc. Northrop Grumman sports a Zacks Rank #2 and its earnings are expected to grow 27% for the current year.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>