Defense Stocks Poised for Big Gains if Clinton Wins
Who, or what, almost always gets presidential election predictions right? If you said “Nostradamus” or “The Amazing Kreskin,” you are wrong. It’s Wall Street. If from late July to late October, stocks in New York go up—and so far, they certainly have—Hillary Clinton will become the first female president. If the bears invade Wall Street, the most likely winner will be Donald Trump. But the better question is: over which defense stocks should they be bullish? In other words, what are the best defense stocks to pick in the event of a Clinton presidency? (Source: “Trump v. Clinton: Stocks can predict the winner,” CNN, July 31, 2016.)
The general rule is that if in the three months before the vote—this year on November 8—Wall Street is doing fine, the party that occupies the White House will win. If the market falls, the opposition party wins the presidency. There have been exceptions but, generally, the rule has held. But there is another reason why investors should pay special attention this year. Wall Street fears a recession, noting that the economic expansion that began in June 2009 could come to an abrupt end.
Today, the S&P 500 index is running at almost 18 times higher than earnings. This intensifies fears and is one more reason to expect a decline. So whether the winner in November is Trump or Clinton, the risk of recession is high. But there are ways that investors can hedge against all three possibilities; that is recession, Trump or Clinton. That hedge comes in the form of aerospace and defense stocks.
If Hillary Clinton Wins in November, Go Bullish on Defense Stocks
Indeed, if Hillary Clinton wins, as is likely, given the current polls, investors should be even more bullish on defense stocks than if Donald Trump were to move from Trump Tower to Pennsylvania Avenue. Although “traditionally more” favorable to the Republican Party (GOP), companies that produce weapons are hoping for a Clinton win. In fact, while many decry Trump as unpresentable and “unfit” to reside in the White House, in terms of foreign policy and defense, America’s most loyal western European allies would be happier.
Most importantly, Donald Trump would relax relations with Moscow and Beijing. In one of his more reasoned exchanges, Trump admitted that there are profound differences between the United States and Russia, or China, but that he would find common ground with both powers on the basis of shared interests. Essentially, Trump wants to shut down the new Cold War, which Obama launched and which Clinton would only intensify. (Source: “Transcript: Donald Trump’s Foreign Policy Speech,” The New York Times, April 27, 2016.)
The military-industrial complex is chomping at the bit to get Hillary Clinton into power. It sees the chance for the U.S. government to re-inflate military spending. A recent NATO summit in Warsaw confirmed as much. Washington is putting pressure on all of its partners to increase military spending, with the excuse of a rising Russian threat—regardless of the fact that many Europeans consider such a threat nonexistent. Those Europeans see Russia as an economic partner and a necessity in the struggle against jihadists.
Trump has not hidden his isolationist tendencies, inherent in his “America First” slogans. Trump has even suggested reducing American involvement in Europe, which must have caused many defense contractors to cringe. (Source: Ibid) Trump would prefer if U.S. allies assumed greater burdens and responsibilities in their defense (even urging Japan to acquire its own nuclear weapons). This would prompt the European partners to come together to develop a more intense shared defense policy. It would also stimulate more European defense manufacturing—reducing opportunities for U.S.-made weapons.
With this in mind, here are three top defense stocks if Hillary Clinton wins.
A Top Defense Stock for 2017… and Beyond
Returning to the original premise, if Hillary Clinton becomes president, Lockheed Martin Corporation (NYSE:LMT) might just make the best defense stock.
Not surprisingly, the more gaffes that Trump makes, the higher LMT stock moves. Recently, Lockheed Martin achieved its highest valuation ever, exceeding $266.00 per share. You see, with Clinton in charge, Lockheed Martin would likely be the primary beneficiary of a renewed increase in military spending.
Simply put, Lockheed Martin is the largest defense stock in the world. It has a myriad of activities; recently, it even became one of the world’s most prolific helicopter manufacturers, after acquiring Sikorsky from United Technologies Corporation (NYSE:UTX). But more than that, Lockheed Martin also manages and executes hundreds of projects, including satellite systems and naval aviation (i.e. the “F-35”).
Lockheed Martin can expect higher demand for missiles and related systems. The company supplies the majority of these types of weapons for the U.S. Air Force and U.S. allies. LMT has multiplied the number of “Paveway II” laser-guided bombs coming out of its assembly lines, and it is boosting manufacturing of its “Hellfire” missile. (Source: “Look out ISIS: Lockheed Martin QUADRUPLES manufacturing of laser guided bombs and boosts production of hellfire missiles, “The Daily Mail, March 18, 2016.)
Since January of this year, Lockheed Martin has gained well over 11%. Better still; the company has clear skies ahead, setting new record-high valuations. Most analysts rate Lockheed Martin stock as a “strong buy” or a “hold.” LMT stock has already achieved and exceeded its median target of $241.50, hitting $266.00. LMT could hit the $275.00 or higher, even in the next few weeks.
Clinton Would Be a Big Win for This Defense Stock
Another company that will benefit from higher defense budgets is Northrop Grumman Corporation (NYSE:NOC).
NOC stock recently hit an all-time high of over $222.00. Northrop’s future health is not in question. Indeed, the company is a major beneficiary of the geopolitical tensions that are contributing to a rise in defense spending.
Week after week this year, this defense stock sets new bullish records. In October 2015, Northrop secured one of the largest single Pentagon contracts in years. In fact, Northrop beat other defense companies like Boeing and Lockheed Martin to build a new long-range bomber—the “LRS-B.” Does America really need this? You might want to ask Trump. But Hillary would pursue the kind of Cold-War-era policies that make such a powerful weapon more necessary than desirable.
NOC stock will gain because, other than its new stealth bomber, Northrop has also won attractive government contracts to upgrade an old fleet of submarines. Meanwhile, as a top maker of drones, Northrop can expect a surge in demand from a Hillary Clinton White House. Clinton is likely to lead the U.S. into more international operations, including in Yemen, where the Saudis need drones to attack rebel positions in the mountains. Unmanned drones are a key tool in modern war, and even more so in the future.
Northrop Grumman makes it easy for you to like its stock, which comes with an attractive dividend payout. After Northrop’s bullish and Wall Street-beating quarter, the company will likely increase its dividends, possibly by as much as 14% in the next few months.
The Hidden Defense Stock
Honeywell International Inc. (NYSE:HON), is a stock that Hillary Clinton would love. Indeed, one of Honeywell’s specialties is cyber security. Greater use of its expertise may have enabled Clinton to better protect herself against the hackers who revealed some of her e-mails. You can bet that Honeywell stock would gain in a Clinton White House.
Honeywell International is a company that is itching for growth. It has set its sights on United Technologies Corporation (NYSE:UTX), also known as UTC. Such a merger would challenge LMT for the role of biggest defense contractor. Honeywell is a technology company with a host of defense and civilian applications. Honeywell specializes in embedded systems for the defense and civilian aerospace industry, as well as control systems for industries, transportation, and housing. Honeywell also has other segments.
Honeywell deals in the field of specialty chemicals; assisting nuclear energy producers; and making consumer products, such as those for personal care and car cleaning. They are also one of the world’s top suppliers of turbochargers for the automotive industry. This sector continues to see growing demand as more engines are switching to turbo technology to maintain high power outputs while saving fuel.
Most people will have seen the Honeywell name on their humble household thermostat control. Yet few would describe Honeywell as a boring stock, especially if we consider HON stock’s trend for the past few years, my friends. Honeywell and UTC together would dominate the aerospace industry. It would serve as a department store for companies like Boeing, Airbus, or Bombardier. Even sector rival Lockheed Martin would be a customer. Honeywell’s divisions make jet engines, cockpits, and landing gears. Honeywell will not stop courting UTC; it may pursue the prey more softly, but it won’t let go.
Bottom Line on Defense Stocks
Many analysts have warned against investing in defense stocks, due to an expected cut in government spending. But if Hillary Clinton wins the White House, that’s not going to happen. The U.S. is involved in so many foreign wars that spending on tanks, fighter jets, aircraft carriers, and other weaponry is posed to soar.
I’ve highlighted some of my favorite names, but these aren’t the only defense stocks poised to profit. Our top tech analyst just revealed his top pick for 2017, which he believes could deliver triple-digit gains for shareholders. Check out his special report, “Military’s ‘6th Branch’ to Create 22,000 Millionaires Again?” Click here now to get the full story.