Dear Mr. Berko: President Donald Trump will spend $639 billion on defense this fiscal year. In fact, he recently announced a $54 billion increase in defense spending, which is up $6 billion from 2016. The president announced that he’s committed to rebuilding our military, committed to improving our cybersecurity ability and committed to increasing our arsenal of planes and ships. What major defense stocks would you recommend to profit from this increased spending?
— J.K., Kankakee, Ill.
Dear J.K.: The following are some of the better picks among the major defense stocks. These three will receive the lion’s share of military spending over the coming four or eight years that Trump will be in office. Many on Wall Street will tell you that defense stocks have already risen in expectation of increased military spending and that current prices are too high to justify a purchase. They’re about 35 percent right.
Lockheed Martin (LMT-$268) — builder of the F-104, the F-16, the F-22, the C-130, the P-3 and others — will be among the prime beneficiaries of increased military spending. The company’s flagship program is its F-35 stealth fighter, the world’s most advanced combat aircraft. LMT intends to build over 2,400 of these technologically advanced jets for the Air Force and Navy. Partner nations Japan, Canada, the United Kingdom and even Israel and Saudi Arabia are also scheduled to receive these highly advanced aircraft. The F-35 program, which represents 26 percent of LMT’s total revenues, is expected to fuel growth and earnings for at least the next decade. There are over 97,000 people who work for LMT, and they’ll put $50 billion in revenues on the books in 2017 plus record earnings of over $12.50 a share. Meanwhile, the $7.45 dividend, yielding 2.8 percent, may be raised to $8.35 next year.
Raytheon (RTN-$151) deploys technologies (some of which are quite sexy) that continually monitor the world’s information environment. RTN interfaces its cybersecurity technologies as a $25 billion provider of ground-based air defense systems, ground-based air intercept systems, airborne and ground-based radar systems, and sophisticated communications systems. The Pentagon recently allotted $19 billion for software and services to protect U.S. computer networks against hackers. So RTN’s Forcepoint cybersecurity imprint and diverse defense services solutions will continue to improve revenues and earnings. An increasing backlog (now $28 billion) and its 63,000 employees should continue to improve revenues, earnings and the superb dividend, which yields 1.9 percent.
