Wizdom
14-07-06, 20:52
Defense stocks attract as global conflicts heat up
Fri Jul 14, 2006 3:25pm ET
NEW YORK (Reuters) - As Israel steps up its assault on Beirut, and tensions remain high over Iran and North Korea, some on Wall Street are pointing to defense companies as an essential component of a "wartime" investment portfolio.
Defense stocks like Lockheed Martin Corp. (LMT.N: Quote, Profile, Research) and Northrop Grumman Corp. (NOC.N: Quote, Profile, Research) have roughly doubled in price since the U.S.-led invasion of Iraq in March 2003 and look likely to hold onto their gains as global violence escalates.
"A conflict per se doesn't have any immediate effect (on stocks)," said Peter Arment, a defense industry analyst at JSA Research. "It's more psychological -- it's sort of a reminder that security issues are top priority."
Defense stocks fell on Friday, in a broad market decline, but the Standard & Poor's Aerospace and Defense index <.GSPAERO> is still up more than 8 percent this year, compared with a 1 percent dip in the S&P 500.
Stocks in the defense sector, which normally trade at a discount to the broader market, are actually more expensive at the moment, pointed out Arment. Leading defense stocks are trading at about 17 times forecast earnings for this year, on average, ahead of an average 14 times for the S&P 500.
Companies like Abrams tanks maker General Dynamics Corp. (GD.N: Quote, Profile, Research), jet fighter maker Lockheed and warship builder Northrop are best positioned to benefit from the growing U.S. defense budget, said Arment, as the United States aims to keep its defenses strong.
Smaller firms like DRS Technologies Inc. (DRS.N: Quote, Profile, Research), which sells defense electronics and military support services, also stand to benefit, he said.
The build-up of tension across the globe fueling strength in defense stocks is a long-term key theme identified by Merrill Lynch investment analyst Richard Bernstein.
"Recent events unfortunately serve to reinforce our theme," said Bernstein in a research note published earlier this week. "India, Israel/Gaza, and Israel/Lebanon are just this week's additions to a growing list of hot spots or buildups in military preparedness. It's unfortunate, but defense stocks -- both in the US and Europe -- and small gold positions still look attractive to us."
Fri Jul 14, 2006 3:25pm ET
NEW YORK (Reuters) - As Israel steps up its assault on Beirut, and tensions remain high over Iran and North Korea, some on Wall Street are pointing to defense companies as an essential component of a "wartime" investment portfolio.
Defense stocks like Lockheed Martin Corp. (LMT.N: Quote, Profile, Research) and Northrop Grumman Corp. (NOC.N: Quote, Profile, Research) have roughly doubled in price since the U.S.-led invasion of Iraq in March 2003 and look likely to hold onto their gains as global violence escalates.
"A conflict per se doesn't have any immediate effect (on stocks)," said Peter Arment, a defense industry analyst at JSA Research. "It's more psychological -- it's sort of a reminder that security issues are top priority."
Defense stocks fell on Friday, in a broad market decline, but the Standard & Poor's Aerospace and Defense index <.GSPAERO> is still up more than 8 percent this year, compared with a 1 percent dip in the S&P 500.
Stocks in the defense sector, which normally trade at a discount to the broader market, are actually more expensive at the moment, pointed out Arment. Leading defense stocks are trading at about 17 times forecast earnings for this year, on average, ahead of an average 14 times for the S&P 500.
Companies like Abrams tanks maker General Dynamics Corp. (GD.N: Quote, Profile, Research), jet fighter maker Lockheed and warship builder Northrop are best positioned to benefit from the growing U.S. defense budget, said Arment, as the United States aims to keep its defenses strong.
Smaller firms like DRS Technologies Inc. (DRS.N: Quote, Profile, Research), which sells defense electronics and military support services, also stand to benefit, he said.
The build-up of tension across the globe fueling strength in defense stocks is a long-term key theme identified by Merrill Lynch investment analyst Richard Bernstein.
"Recent events unfortunately serve to reinforce our theme," said Bernstein in a research note published earlier this week. "India, Israel/Gaza, and Israel/Lebanon are just this week's additions to a growing list of hot spots or buildups in military preparedness. It's unfortunate, but defense stocks -- both in the US and Europe -- and small gold positions still look attractive to us."