3 Defense Stocks for This Veterans Day

The U.S. is about to celebrate one of its most important federal holidays on the 11th of November. Investors’ cheers will be louder as the markets have reacted positively on favorable jobs data and a resounding mid-term election win for the Republicans. Countless citizens will join to celebrate Veterans Day and pay tribute to the veterans who have served in the forces.

The celebratory mode is gaining further traction as the equity market is currently trading at all-time highs. Adding to it, the improvement in the labor market, rise in Consumer Confidence Index, recovery in the housing sector and the wind-down of the bond buyback plan – the pointers for a firm economic well-being are clear and definite.

At this juncture, buying American defense stocks will offer one more opportunity to investors to contribute handsomely to the economy and security of the country. However, before we guide you on which stocks to buy at this opportune time, let us have a peek into how patriotic spending benefits economic growth.

Why Buy American Goods?

Despite arguments and counter-arguments, various studies have revealed that when American-made products are bought, it directly or indirectly creates new jobs and benefits the overall economy. According to the Boston Consulting Group, “If every builder in America used just 5% more Made-In-America products, it would create 220,000 American jobs.” Purchase of domestically manufactured products also minimizes imports, improves balance of trade and leads to trade surplus.

The Federal Transportation Administration (FTA) has utilized the “Buy America” Act to boost the job-creation potential of public funds. The Act ensures that final assembly of the railway vehicles and buses purchased with FTA funding occurs within the U.S., while all components and sub-components have over 60% domestic content.

A research study by the University of Massachusetts indicate that on an average, at least 26% more jobs are created when manufacturers fully source the components and subcomponents of their vehicles domestically compared to manufacturers that only meet the 60% “Buy America” requirement.

Feel-Good Factors

According to private payroll processor ADP, 230,000 new jobs were created in October – the seventh consecutive month of job gains in excess of 200,000. When the Bureau of Labor Statistics releases the data for non-farm payroll numbers, it is expected to show 231,000 job additions.

Total non-farm payroll accounts for approximately 80% of the workers who produce the entire GDP of the U.S. The unemployment rate is also expected to be close to 5.9% recorded in Sep 2014 – the lowest since Jul 2008.

Higher employment opportunities will lead to improved consumer confidence, which is a key determinant of the economy’s health. For the first nine months of 2014, employers have added an average of 227,000 jobs a month, up from an average of 194,000 last year. The economy reportedly gained an estimated 2.64 million jobs in the past 12 months, the best annual performance since Apr 2006.

The U.S. GDP grew at an annualized rate of 3.5% in the third quarter as business investment improved steadily and trade deficit narrowed. Government outlays also witnessed a dramatic improvement with the loosening of purse strings for defense spending, which rose the fastest since second-quarter 2009. Consequently, the outlook for the U.S. economy appears to be on firm footing and is likely to exceed the International Monetary Fund’s (:IMF) 2.2% GDP growth expectations in 2014 and that of 3.1% in 2015.

A recent Conference Board data suggests that Consumer Confidence Index increased to 94.5 in Oct 2014 from 89.0 in Sep 2014. This further leads to higher consumer spending, which accounts for over two-third of the U.S. economic activity. The October PMI was recorded at 59% – a sequential increase of 2.4 percentage points.

A reading of above 50% generally indicates that the manufacturing economy is expanding. The economic uptrend is more evident from the Bull Run in the equity market, which has charted new highs on many occasions since last year.

3 Top Defense Stocks to Buy

Veterans Day offers the perfect opportunity to respect the love of country, patriotism, service and sacrifices of the American veterans of the US Army, Navy, Marine Corps, Air Force and the Coast Guard. And what better way would it be to celebrate Veterans Day than buy some American defense sector stocks as an acknowledgement for these veterans. Let’s take a closer look at a handful of domestic defense stocks with attractive valuation metrics and a favorable Zacks Rank that appear to be well positioned to benefit from the solid sector dynamics as well.

The Boeing Company (BA): Based in Chicago, IL, it is the largest aerospace company in the world and the leading manufacturer of commercial jetliners and military aircraft combined. The company provides various military and commercial airline support services, designs and manufactures rotorcraft, electronic and defense systems, missiles, satellites, launch vehicles and advanced information and communication systems. The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) stock’s earnings for the current year has moved up 1% in the last 30 days.

With a forward PE of 14.9x and long-term earnings growth expectations of 10.7%, Boeing is a solid pick. In addition, Boeing belongs to the Aerospace/Defense Industry that carries a Zacks Industry Rank #40. As a guideline, the outlook for industries with Zacks Industry Rank #88 and lower is 'Positive,' between #89 and #176 is 'Neutral' and #177 and higher is 'Negative.'

Erickson Inc. (EAC): Headquartered in Portland, OR, it is a premier global provider of aviation services for a diverse mix of commercial and government customers. This Zacks Rank #2 stock supports critical supply and logistics for deployed military forces, humanitarian relief, firefighting, timber harvesting, infrastructure construction, and crewing.

Erickson has long-term earnings growth expectation of 13.5% and is currently trading at a forward PE of 26.3x.

General Dynamics Corp. (GD): Headquartered in Falls Church, VA, the company offers a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; shipbuilding; and communication and information technology systems and solutions. This Zacks Rank #2 (Buy) stock has witnessed 2.1% upward earnings estimate revision for the current year in the last 30 days.

With a forward PE of 18.4x and long-term earnings growth expectations of 7.5%, General Dynamics appears to be a prized catch.

Moving Forward

The ex-Vice President of the U.S. Hubert H. Humphrey once observed, “What we need are critical lovers of America -- patriots who express their faith in their country by working to improve it.” Perhaps, the 11th of November is one of the most opportune times to showcase this patriotism and pay tribute to the veterans by owning these defense stocks.

Read the Full Research Report on BA
Read the Full Research Report on GD
Read the Full Research Report on EAC


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