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4 Defense Stocks Worth Investing in Ahead of Q3 Earnings

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Stocks in the U.S. aerospace and defense space have been rallying since the beginning of the year, courtesy of a number of favorable factors, domestic as well as international. Coming to third-quarter performance, the Zacks Aerospace sector, constituting major U.S. defense contractors, ended the period on a positive note. The sector rallied 10.2% in the September quarter, higher than the S&P 500’s return of 6.8%.

We have briefly mentioned some factors that led the industry to outperform the market in the past three months.  

Budget Upside

Increased budget allocations in America have been boosting the defense stocks. 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, reflecting 5% real growth over initial fiscal 2018 President’s budget. No doubt, it was cheered by investors keeping a watch on the defense space. This significantly boosted the growth prospects of defense stocks.

Trump’s International Policy

President Trump, being the chief-of-command of the largest weapons supplier worldwide, is an influential leader who holds the capability to reform the fate of defense stocks. On Jul 12, President Trump said that NATO allies agreed to raise their defense spending to 2% of their GDP by 2024. Trump claimed victory in his efforts to convince European allies to raise their defense spending. This led to a rally in defense stocks on the following day, thus leading to a rebound in the markets reeling under trade war fears.

Bright Earnings Prospects

Stocks in the Zacks Aerospace sector are expected to exhibit year-over-year earnings growth of 16.6% on 6.5% revenue growth in the third quarter. This should boost investors’ optimism in defense stocks.

4 Stocks Worth Adding to Your Portfolio

With the defense stocks outperforming the broader market in the September quarter and promising higher returns, we have shortlisted four defense stocks that have outperformed the S&P 500’s gain in the third quarter.

AeroVironment (AVAV - Free Report) , a Zacks Rank #1 (Strong Buy) stock, manufactures unmanned aerial vehicles and tactical missile systems. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company’s shares gained 57.3% in the third quarter, outperforming the S&P 500’s gain of 6.8%.  It delivered an average earnings surprise of 365.3% in the last four quarters.

Curtiss-Wright Corp (CW - Free Report) , another Zacks Rank #1 stock, offers highly engineered products for defense electronics. The company’s shares gained 14.8% in the third quarter. The company delivered an average earnings surprise of 22.3% in the last four quarters.

Textron (TXT - Free Report) , another Zacks Rank #1 stock, produces military helicopters. The company’s shares gained 8.1% in the third quarter and delivered an average earnings surprise of 20.4% in the last four quarters.

Lockheed Martin (LMT - Free Report) , a Zacks Rank #2 (Buy) stock, is the largest defense contractor in the world. The company’s shares gained 15.6% in the third quarter and witnessed an average earnings surprise of 9.1% in the last four quarters.

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