Defense Stocks Are in a Funk. Their Earnings Could End It.
The aerospace and defense components of the S&P 500 dropped 10% in 2018 even though earnings increased nearly 13%. The sector now trades for about 16 times estimated 2019 earnings, down from 21 times a year ago.
Those cheaper valuations, plus a solid outlook for military spending, are two good reasons to revisit the sector now. If you need a third, Barron’s likes defense.
We made a bullish call on Boeing (ticker: BA) stock in November, the same month we warned about a coming hypersonic arms race that could channel more cash to defense companies. Lockheed Martin (LMT) and Northrop Grumman (NOC) are two of the Barron’s Roundtable picks for 2019.
A year ago, when valuations in the sector were higher, investors were more comfortable with the outlook for military spending and the federal government hadn’t just been closed for five weeks.
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