NOC Stock: This Could Be Huge for Northrop Grumman Company

NOC StockNorthrop Grumman Company Could Be Hot in 2016

The terrorist attacks in Paris reminded all of us of the ongoing battle to fight terrorism around the world. The battle will offer a lever to drive up the global demand for the top defense stocks, such as Raytheon Company (NYSE:RTN), Lockheed Martin Corporation (NYSE:LMT), and General Dynamics Corporation (NYSE:GD). Northrop Grumman Corporation (NYSE:NOC) and NOC stock could be a big winner, in particular.

From missiles to advanced weaponry, fighter jets, bombers, and defense systems, the ongoing threat of terrorism, along with a global desire to spend increasingly more money on building up military, will likely be a key tailwind for these defense stocks going forward.

Take a look at the iShares U.S. Aerospace & Defense ETF (NYSE:ITA), which had been rallying since breaking out in November 2014. The ETF peaked in March 2015, followed by a recent near-term bottom in September, but it now appears to be flying higher again due to the increased media and military focus on terrorism.

We have also seen a rise in modern technological warfare, using advanced military-grade drones that offer the ability to hunt down enemies and take them out with a rocket. No matter where one hides, the drones can ultimately hunt them down.

iShares Dow Jones US Aerospace and Defense Chart

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Jihadi John, the ruthless executioner for ISIS, was recently taken out via a drone strike that was able to trace the steps of the ISIS spokesman in Syria. However, the most famous use of drones was probably the tracking down of Osama Bin Laden, which eventually led to the raid of his secret compound and his elimination.

The global demand for drones is forecasted to more than double over the next decade, based on research from the Teal Group. The report suggests the global market for drones could rise to a whopping $91.0 billion, with the majority of sales (about 80%) for military use. (Source: “Teal Group Predicts Worldwide UAV Market Will Total $91 Billion in Its 2014 UAV Market Profile and Forecast,” Teal Group, July 14, 2014.)

It doesn’t take an MBA to understand what’s going on here. More military spending translates into more profits for defense contractors. That’s bullish for firms like Northrop Grumman and NOC stock.

My Big Drone Play

Savvy investors, however, can also look beyond well-known companies like Lockheed Martin and NOC stock for opportunities. The biggest maker of recreational drones in the world is the China-based, privately held SZ DJI Technology Co., while a major U.S. seller of military-grade drones is the privately held General Atomics. However, a small-cap stock that is looking to become a force in the drone business, both military and commercial, is AeroVironment, Inc. (NASDAQ:AVAV).

Trading well below its 52-week high of $30.68, set in November 2014, the stock could reward aggressive stock market traders.

AeroVironment Chart

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The company’s electric-powered unmanned aircraft systems (UAS, or drones) have won contracts from the military, along with contracts for commercial applications.

While AeroVironment has been struggling, my thinking is that the share price could rally if it can grow its drone business and deliver better results to Wall Street and the stock market. All I can say is that terrorists better keep an eye out for AeroVironment drones in the future or it will be lights out.

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