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Defense Stocks Are Lagging and There Are No Good Reasons Whyfrom Barron's Defense Stocks Are Lagging and There Are No Good Reasons WhyBy Al Root Defense stocks, including Lockheed Martin (LMT), Raytheon (RTN) andNorthrop Grumman (NOC), have trailed the market this year, and it’s not exactly clear why. We know why it’s not:
Morgan Stanley noted some of these paradoxes in a bullish note on defense stocks on Tuesday. Analyst Rajeev Lalwani specifically pointed to Lockheed Martin and Raytheon—two stocks he has a buy rating on—that have more that 20% upside versus his price targets. We can extend this value investigation beyond just Morgan Stanley’s ideas.Boeing (BA) and Northrop Grumman are also stocks with above average analyst ratings that have more than 26% upside based on analyst targets. Both stock raised 2018 guidance on their recent quarterly earnings call too. The average market value of those four companies is about $90 billion, but investors don’t have to stick with large capitalization stocks to invest in defense. Goldman Sachs upgraded Kratos Defense & Security Solutions(KTOS), a small-cap defense stock that makes jet-powered drones, on Monday. The implicit message in this analysis is that the defense sector looks attractiveto Barron’s. For one, the sector isn’t always correlated with the global economy. The defense budget outlook is often predicated on peace and politics and Morgan Stanley predicts spending will rise through 2020. That’s a comforting prediction when fears about the global economy are on the rise. It may be time to look to add some defense stocks for some added portfolio safety. |
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