Aerospace & Defense

3 Top Defense Stocks That May Benefit From New Congress

Defense is one of the few Wall Street sectors that often gets more direction from politicians in Washington, D.C., than stock analysts. For years, many have howled over the size of the massive defense budget, and those complaints will not stop anytime soon. However, with a slow-growing economy, and defense supplying jobs in many areas of the country, most on Wall Street see the sector very stable for 2015.

A new report from UBS points out that fourth-quarter orders for the four major contractors in the sector were up big over last year, and overall orders for 2014 were up 43% from the prior year. They see the total of all Department of Defense contracts to vendors up 41% for last year. With a new Congress in Washington, and a lot of discord around the world, it is a good bet that appropriations stay solid in 2015.

And so UBS is very bullish on the following three top stocks to buy for 2015.

Alliant Techsystems Inc. (NYSE: ATK) is a top defense stock rated Buy at UBS. It is a world-leading producer of ammunition, precision weapons and rocket motors. The company announced last week that its board of directors has established a distribution ratio for the previously announced spin-off of its Sporting Group business to stockholders as a newly formed company called Vista Outdoor. Stockholders will receive two shares of Vista Outdoor common stock for every one share of ATK common stock they hold on the record date, which has yet to be determined. A nice bonus and diversification for new and existing shareholders.

Alliant Techsystems investors are paid a 1.1% dividend. UBS has a $135 price target, and the Thomson/First Call consensus price target is at $133.56. The stock closed Friday at $117.80 a share.

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General Dynamics Corp. (NYSE: GD), like other major defense contractors, had a very solid year and makes the list at UBS as a stock to buy for 2015. It is a worldwide aerospace and defense company with more than 96,000 employees worldwide. General Dynamics operates through four business groups: Aerospace, Combat Systems, Marine Systems and Information Systems and Technology. The U.S. government is its largest customer, which could bode well as now that Congress has changed hands.

General Dynamics investors receive a 1.8% dividend. UBS has a whopping $162 price target, while the consensus target is much lower at $146.59. Shares closed Friday at $138.97.

Huntington Ingalls Industries Inc. (NYSE: HII) is a lesser known defense name that also has a rating of Buy at UBS for 2015. The company designs, builds, overhauls and repairs ships primarily for the U.S. Navy and Coast Guard. It offers nuclear-powered ships, such as aircraft carriers and submarines, and non-nuclear ships, including surface combatants, expeditionary warfare/amphibious assault, coastal defense surface ships and national security cutters. It also engages in the refueling and overhaul, and inactivation of nuclear-powered ships.

Investors are paid a 1.4% dividend. UBS has a $120 price target, and the consensus target is lower at $116.45. The stock closed Friday at $115.88 a share.

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With all the chatter of the sequester two years ago seemingly off the table for now, investors looking to add defense positions to portfolios may be able to take advantage of recent selling to buy these stocks. With a change in the Congress now in place, it is very possible the spending level stays right where it is, or perhaps goes higher.

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