3 Undervalued and Stable Defense Stocks
The best defense stocks to buy are the companies that have their tentacles in a range of different projects and those that continue to innovate. Overall though, the defense sector has been resilient amid the novel coronavirus pandemic. It has enjoyed a quiet second quarter, which has otherwise been a torrid time for investors in other industries.
The sector is relatively stable with substantial demand for its products and a reliable entity (usually the government), which has a virtually spotless record. Defense companies offer a wide variety of products to their primary customer, which includes everything from navigation systems to missiles to telecommunications equipment.
Investors typically look at the SPDR S&P Aerospace & Defense ETF (NYSEARCA:XAR) to have a better sense of how the sector is doing. The index grew 10.5% from the end of March to July, which is significantly better than other industries. In fact, the index has provided better returns this month compared to the S&P 500.
However, not all defense stocks have done well. Here are three of the most reliable defense stocks:
Here’s a closer look at what makes each worth buying now.
Northrop Grumman (NOC)
Northrop Grumman is a Virginia-based global aerospace and defense technology company. It has a market cap of $56 billion, making it one of the largest defense companies in the world. NOC stock currently yields a 1-month return of 8.2% and its forward rate of return is an impressive 15.9%.
Notably, Northrop exceeded expectations in its second-quarter earnings report. The company reported quarterly EPS of $6.01 compared to estimates of $5.36. Revenues came in at $8.9 billion, beating Zacks Equity Research’s expectations by 3.4%. The company is currently focused on managing its new operational structure, which it adopted this year.
Additionally, it is currently developing its B-21 Bomber for the Air Force’s bomber fleet. The Air Force is expected to buy 80 to 100 planes with a price tag of $80 billion. Moreover, the company is also a major subcontractor for Lockheed’s F-35. The F-35 project could be a trillion-dollar program. As a result, NOC stock’s 12-month price target is estimated at $392, a 20% premium to its current price.
All of this adds up to make NOC stock one of the most reliable defense stocks to buy now.
Lockheed Martin (LMT)
Lockheed Martin is the world’s largest defense contractor with a market cap of $109 billion. Its product portfolio is massive, consisting of aircraft, helicopters, missiles and electronics. LMT stock currently yields a 1-month return of 9.2% and it has a healthy forward rate of return of 17.5%.
The company’s claim to fame is its F-35 fighter. The pandemic has negatively affected the F35’s vast supply chain. Regardless of any disruptions, the company has a backlog of roughly $150.3 billion as of the second quarter. Meanwhile, earnings per share rose 15.8% to $5.79 per share. Additionally, revenues also increased by 12.5% to $16.2 billion.
Apart from its F-35 fighter jets, Lockheed’s space and research labs are handling several sensitive Pentagon projects. Moreover, the U.S. Army is using its Terminal High Altitude Area Defense (THAAD) systems to deter potential missile attacks. The 12-month price target for LMT stock is $434 — a 12% premium to its current price.
ManTech International (MANT)
ManTech International is one of the oldest American defense contracting firms. It has diversified its revenues in recent years towards handling military logistics, managing facilities in foreign lands and towards technology more broadly. MANT stock has generated a 19.4% return this year, the highest among the top defense stocks to consider now. Additionally, its forward return is at a remarkable 15.4%.
The company recently announced its second-quarter EPS of 84 cents, beating estimates by 27%. Moreover, revenues blew analyst estimates by 11.3% for the quarter. ManTech has a pristine balance sheet, which also makes it one of the more appealing defense stocks to buy.
Specifically, MANT has a debt-to-equity ratio of 0.09. Its robust fundamentals enable it to consider merger and acquisition opportunities. MANT stock has a 12-month price target of $82, which is a slight premium to its current price.
Article partially appeared onInvestorPlace.com
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