6 Stocks Dominate Defense and Aerospace Sector, All Are Strong Buys

Print Email

Regardless of the economy, the defense of our country remains a top priority, no matter who is in the White House or what party controls Congress. In fact, each year the government spends an astonishing $970 billion in defense contracts. For years that money was spread over countless companies, but now six of the top seven top defense contractors receive a whopping 22.2% of the contracts assigned.

An incredible fact is that the top companies have swallowed many of the smaller players in the industry to increase their footprints and capabilities. Over the past 40 years, the companies supplying the government have declined from 100 to the current six top vendors via consolidation or attrition.

We screened the Merrill Lynch research universe, and all six of the top companies supplying the government for defense are rated Buy, and all are great holdings for long-term buy-and-hold portfolios.

Boeing

This stock has traded in a tight range all year and looks ready to break out. Boeing Co. (NYSE: BA) is the world’s leading aerospace company and the largest manufacturer of commercial jetliners and military aircraft combined.

The different segments in the company are: Commercial Airplanes; Boeing Defense, Space & Securit;, and Boeing Capital, which provides financial solutions facilitating sale and delivery of Boeing commercial and military aircraft, satellites, and launch vehicles.

Boeing and Embraer signed a nonbinding memorandum of understanding to create a new strategic partnership for commercial aviation. The new joint venture is valued at $4.75 billion, which values Boeing’s 80% share at $3.8 billion.

Shareholders receive a 1.86% dividend. The Merrill Lynch price objective is a stunning $450, and the Wall Street consensus target is $412.57. The stock closed Tuesday’s trading at $367.23 a share.

General Dynamics

This company, like other major defense prime contractors, is having a very solid year and is on the Merrill Lynch US 1 list. General Dynamics Corp. (NYSE: GD) is engaged in business aviation, land and expeditionary combat vehicles and systems, armaments, munitions, shipbuilding and marine systems, and information systems and technologies.

Major products include Virginia-class nuclear-powered submarine and Ohio class replacement, Arleigh Burke-class Aegis, Abrams M1A2 tank, Stryker 8-wheeled assault vehicle, medium-caliber munitions and gun systems, tactical and strategic mission systems.

Investors are paid a 1.83% dividend. Merrill Lynch has a $275 price target, while the consensus estimate is $236.11. The stock closed Tuesday at $203.48.

Lockheed Martin

This is one of the top aerospace and defense stocks to buy, and many on Wall Street are expecting a very solid continuation of U.S. and foreign defense spending. Lockheed Martin Corp. (NYSE: LMT) researches, designs, develops, manufactures, integrates, operates and sustains advanced technology systems, products and services. It also provides a wide range of defense electronics products and IT services.

Being the Pentagon’s prime contractor, Lockheed Martin offers a diverse portfolio of global aerospace, defense, security and advanced technologies. Its leveraged presence in the Army, Air Force, Navy and IT programs guarantees a steady inflow of follow-on orders, not only from the U.S. government but also from many foreign allies of the nation.

Investors receive a 2.37% dividend. The $412 Merrill Lynch price objective is well above the consensus target of $377.11. The shares closed Tuesday at $343.58.