While tensions with North Korea have taken a bite out of the stock market, defense stocks are benefiting.
Shares of defense companies like Lockheed Martin, L3 Communications and Raytheon have surged to record highs in the wake of remarks President Donald Trump made Tuesday about meeting North Korea with “fire and fury” if the nation were to threaten the United States.
Investors likely flocked to buy up shares of the defense names with the thought that should the U.S. actually engage militarily with North Korea, defense contractors would benefit. Baird on Thursday raised its price target for Raytheon by 25 percent, implying about 18 percent upside from current levels.
“We are raising the price target of Raytheon … reflecting the significant programs wins both domestically and internationally for missile defense and missile systems that puts Raytheon in position for favorable organic growth in 2018 and beyond,” analyst Peter Arment wrote in a note to clients.
The bump seen on Wednesday was most certainly all about North Korea-related tension, but the defense stocks themselves look strong more broadly, said Erin Gibbs, portfolio manager at S&P Global. Earnings growth for the group has been above expectations this year.
“It is still not as great as we would like; we are still only expecting about 9 percent earnings growth for aerospace and defense for this year, and 10 percent for next year, so not amazing,” Gibbs said, adding that she would recommend Raytheon and Rockwell Collins at this juncture.
“We see some of the best value and growth with those two, particularly with some of the anti-air missile defense systems and the merger rumors. Those could be, potentially, your best bets, even if things escalate or don’t escalate with North Korea,” she said.
On a strictly technical basis, L3 Communications appears poised to rise about 10 percent from current levels, said Rich Ross, head of technical analysis at Evercore ISI. This is due in part to a long-term base of support he sees in the performance chart, which points to further bullish activity. The longer-term weekly chart of L3 Communications, too, paints a bullish picture on a technical basis.
Ross pointed out a “consolidative multiyear trading range,” which he sees giving way to further upside. “I’m a buyer of the stock,” he said on CNBC’s “Power Lunch.” “I think it looks great in textbook pattern and form.”
Source: Investment Cnbc
The set of stocks that are surging to record highs on North Korea tensions