Article Highlights:
- The BULLs are already up 70% since 2017.
- The U.S. defense budget is projected to rise to $735 billion by 2033, fueling further growth.
- All that said, the BULLs are still trading roughly 40% below peak valuation levels.
Looking for the next hot group of stocks to buy?
Forget tech stocks, and especially the FAANGs (Facebook, Amazon, Apple, Netflix and Google).
They’re overvalued, overbought by investors and over the hill as antitrust sentiment builds in Washington, D.C.
Top defense stocks to buy are the BULLs — defense biggies Boeing Co., United Technologies Corp., L3 Technologies Inc. and Lockheed Martin Corp.
United Technologies’ recent merger with Raytheon to form a new, $121 billion corporation ought to be your biggest clue why.
Defense Stocks to Buy: BULLs vs. FAANG
In a world filled with uncertainty over trade and consumer demand, defense stocks offer just the opposite — consistent profits, increased spending and plenty of paying customers in the form of the U.S. military and its allies around the globe.
Just consider that the BULLs are up 11% since September while the FAANGs are down almost 10%.
(Source: TradingView.com)
Owning the BULLs since 2017 would put you up 70%, outperforming the Nasdaq Composite Index (40%) and S&P 500 Index (27%) combined.
And I have one up-and-coming defense contractor in my Total Wealth Insider model portfolio that’s up more than 70% in a handful of months.
But here’s the real takeaway on this trend…
Unlike the FAANGs, defense stocks are still undervalued, with plenty of room to run.
The Relative Safety of Defense Stocks
The Congressional Budget Office projects the U.S. defense budget rising from the current $686 billion to $735 billion by 2033. That’s plenty of fuel to move the needle on this sector.
And as a group, the BULLs are still trading roughly 40% below peak valuation levels.
For instance, Lockheed Martin’s shares currently trade at a price-to-earnings (P/E) ratio of 15, based on the company’s expected profits over the next 12 months. The low valuation reflects the lack of interest in the sector right now.
But back in 2001, as investors fled tech stocks for the relative safety of defense companies, Lockheed’s shares traded at a P/E above 30.
The point is, there’s plenty of room for defense companies’ stocks to move much higher, regardless of the broader market.
Investors who focus on this group will be well-rewarded for choosing value instead of popularity.
Best of good buys,
Jeff L. Yastine
Editor, Total Wealth Insider