Investors who wish to expand their investments in the U.S. defense sector might find it prudent to do so at this point, as demand for defense-related products remained high in October.
Not only are defense programs emerging as top priority for the U.S. government, but also these companies come with a strong foothold in the global defense products and services market, and thus, have solid long-term prospects.
Defense-Related Orders Lead Durable Goods Orders
Orders to American durable goods rebounded in October, owing to a surge in demand for military aircraft. According to the U.S. Census Bureau, orders for durable goods inched up 0.6% in the month, after shedding 1.4% in September. The overall new orders for manufactured durable goods in October rose $1.5 billion to reach $248.7 billion.
To be specific, new orders for military aircraft shot up 18.1%. Shipments of defense aircraft and parts also increased 3.5%. Therefore, it is safe to say that demand for these defense-related products resulted in the uptick in orders for durable goods last month because if one excludes the former, the latter only added 0.1%.
More-Than-Expected U.S. Economy Growth in Q3
Coming to economic growth in the United States, GDP growth took place at a faster pace in third-quarter 2019, contrary to economists’ expectations. According to the second estimate released by the Bureau of Economic Analysis, the U.S. economy expanded at a rate of 2.1% during the July-September 2019 period, somewhat faster than initially reported.
This expansion resulted from a surge in private inventory investment, exports and residential fixed investment. To be specific, orders for durable goods increased at a seasonally adjusted annual rate of 8.3% in the third quarter.
Our Choices
We have, therefore, selected five stocks that could gain from third-quarter 2019 growth in the U.S. economy as well as the spike in shipments and new orders of defense-related products. All of these stocks carry a Zacks Rank #2 (Buy), at present, and investors could consider adding these stocks to their portfolio.
Northrop Grumman Corporation NOC is an operator of aerospace systems, innovation systems, mission systems and technology services segments. The company offers a wide set of systems, products and solutions related to these segments.
The Zacks Consensus Estimate for Northrop Grumman’s current-year earnings has risen 3.8% over the past 60 days. Shares of the company have outperformed the Zacks Aerospace – Defense Industry on a year-to-date basis (+44.1% vs +26.8%). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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L3Harris Technologies, Inc. LHX is a provider of technology-based solutions that are well-equipped to solve mission-critical challenges of the government and commercial customers. The Zacks Consensus Estimate for L3Harris Technologies’ ongoing-year earnings has moved 6.6% north over the past 60 days. The stock has outperformed the Zacks Aerospace – Defense Industry on a year-to-date basis (+48.9% vs +26.8%).
Leidos Holdings, Inc. LDOS is a provider of services and solutions in the defense market. The Zacks Consensus Estimate for Leidos’ 2019 earnings has moved up 4.6% over the past 60 days. The company’s shares have outperformed the Zacks Aerospace – Defense Industry on a year-to-date basis (+72.6% vs +26.8%).
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Air Industries Group AIRI is an aerospace and defense company. The company is a designer and manufacturer of structural parts and assemblies related to flight safety. The Zacks Consensus Estimate for Air Industries’ current-year earnings has been revised 63.6% upward over the past 60 days. The stock has outperformed the Zacks Aerospace – Defense Industry on a year-to-date basis (+69.2% vs +26.8%).
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Teledyne Technologies Incorporated TDY is a provider of instrumentation, digital imaging, aerospace and defense electronics, and engineered systems. The Zacks Consensus Estimate for Teledyne Technologies’ 2019 earnings has risen 4.2% over the past 60 days. Shares of the company have outperformed the Zacks Aerospace – Defense Equipment Industry on a year-to-date basis (+67.3% vs +45.2%).
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