Stocks in the U.S. aerospace and defense space have been performing exceptionally well for the past couple of years and 2018 is no exception, courtesy of a number of favorable factors, both domestic and international. On top of that, the country’s latest efforts to boost its arms sales to countries like Saudi Arabia have bolstered this space’s growth.
Here we briefly mention some growth catalysts for America’s defense sector in 2018.
It’s beyond doubt that President Donald Trump has acted as a major growth driver for U.S. defense stocks, be it through his expansionary budget or increased initiatives to deter foreign military intervention. To this end, the month of August saw Trump giving 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 the initial fiscal 2018 President’s budget.In July, Trump said that NATO allies agreed to raise their defense spending to 2% of their GDP by 2024. Both these developments were cheered by investors keeping a watch on the defense space.
In the last week of November, cross-border tensions between Ukraine and Russia escalated significantly after Russia fired on Ukrainian vessels in the Kerch Strait off the Crimean Peninsula. The U.S. administration strongly condemned this action, supporting Kurt Volker’s indication that Washington is ready to expand arms supplies to Ukraine in the face of continuing Russian support for eastern separatists (per the Guardian).
What’s in Store for 2019?
Significant mergers and acquisitions like that of L3 Technologies and Harris Corp as well as Transdigm Group and Esterline Technologies are expected to boost the economies of scale for America’s defense sector in 2019 and beyond. Impressively, stocks in the Zacks Aerospace sector, containing U.S. defense majors, are expected to exhibit year-over-year earnings growth of 10.7% on 7.1% revenue growth in 2019. Moreover, President Trump has reportedly asked the defense secretary to present a colossal $750-billion defense budget proposal for fiscal 2020, per Politico.
In view of this backdrop, we have picked five defense players with a Zacks Rank of #1 (Strong Buy) or 2 (Buy), which should be prudent choices for investors in 2019. You can see the complete list of today’s Zacks #1 Rank stocks here.
Teledyne Technologies (TDY - Free Report) is an industrial conglomerate that serves the aerospace and defense market and a few more. The company, sporting a Zacks Rank #1, has an expected earnings growth rate of 2.9% for the next year. Over the past 60 days, the company has seen Zacks Consensus earnings estimates for 2019 move up by 5.3%.
Aerovironment (AVAV - Free Report) is a leading manufacturer of Unmanned Aircraft Systems and tactical missile systems. The company, with a Zacks Rank #1, has an expected earnings growth rate of 42.6% for fiscal 2019. Over the past 60 days, the company has seen the estimate for fiscal 2019 earnings increase 13.2%.
Boeing (BA - Free Report) is the largest aircraft manufacturer. The company, with a Zacks Rank #2, has an expected earnings growth rate of 20.2% for the next year. Over the past 60 days, the company has seen estimate for 2019 earnings move 3.8% north.
Engility Holdings offers engineering and mission support to customers in the U.S. Department of Defense, Federal civilian agencies and allied foreign governments. The company, with a Zacks Rank #2, has an expected earnings growth rate of 5.9% for the next year. Over the past 60 days, the company has seen the estimate for 2019 earnings move 3.3% north.
HEICO Corp. (HEI - Free Report) is one of the world’s leading manufacturers of Federal Aviation Administration (“FAA”)-approved jet engine and aircraft component replacement parts. The company, with a Zacks Rank #2, has an expected earnings growth rate of 11.1% for the fiscal 2019. Over the past 60 days, the company has seen the estimate for fiscal 2019 earnings to inch up 0.9%.
In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?
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