Defend Your Portfolio With These Top Defense Stocks
If there’s an underlying theme to economic conditions in the U.S. and across the globe, “tension” might be most fitting.
Along with 9.1% inflation and high energy costs in the U.S., there's escalating violence in Ukraine, and growing tension in Sri Lanka and the Netherlands, where government uprisings continue.
In this segment, I speak with Senior Analyst Tony Sagami about specific stocks considered to be leveraged to tension in an industry, all but guaranteed to expand over the next few years.
You can watch the video here or continue reading for the full transcript.
Jessica Borg (narration): It may seem that uncertainty rules the day.
JB: What do you see as being the underlying theme, if there is one, to the economy right now?
Tony Sagami: Let me describe it in one general term: tension.
We have tension about high gas prices, tension about inflation.
There’s a lot of tension going on in the U.S., but that’s taken away from the tension that’s happening all over the globe.
JB (narration): Like mounting tension in Ukraine.
The U.S. is supplying arms, including the Javelin missile defense systems you see on this transport carrier.
Military defense is a sector that Senior Analyst Tony Sagami sees as rapidly expanding.
Tony is the editor of Disruptors & Dominators and Weiss Ultimate Portfolio.
Both trading services hold stocks leveraged to growing trends.
TS: Even before conflict breaks out, the lead up to the conflict is always to stock up on military hardware.
I think that’s one of the recession-resistant areas because war doesn’t know about recession. War just knows about tension.
JB (narration): Raytheon Technologies (RTX) isheadquartered in Massachusetts andis a huge name in aerospace and intelligence services.
It jointly makes the Javelins.
TS: We are sending them in droves to Ukraine.
JB (narration): Ukraine views these heat-seeking, anti-armor systems as critical in their fight against Russian attacks.
Ukrainians have even turned them into a symbol of national protection.
TS: And the reason why they’re so popular is because they’re very portable, and they are very effective at hitting Russian tanks off in the distance.
These are tank killers, and with all those armored vehicles and Russian tanks, this is the Ukrainian’s most effective weapons against Russian advancement.
JB (narration): Raytheon is a top holding in the iShares U.S. Aerospace & Defense ETF (ITA).
TS: Here are its top 10 holdings. Raytheon, by the way, is number one with more than 22% of the portfolio … so that tells you how important they think Raytheon is in the defense industry.
JB (narration): Lockheed Martin (LMT) is the second top holding.
Lockheed is partnered with Raytheon in hundreds of millions of dollars’ worth of contracts, and both companies pay nice dividends.
The exchange-traded fund also holds Huntington Ingalls Industries (HII), with a share price in the range of $210.
TS: That’s the biggest military shipbuilder in the U.S.
JB: Tony, you think drones are a significant part of the future.
TS: I think the future of aviation warfare is going to be done by drones and not by manned aircrafts.
But the real key thing about these military and defense stocks that we’re talking about is that their earnings are going to explode.
So no matter what happens to the stock market, I think you have the opportunity to make some real significant gains there.
JB (narration): These are drones made by a lesser-known firm called AeroVironment (AVAV).
The U.S. is sending these powerful and precise drones to Ukraine.
TS: We just sent them 10 and they asked for another 400.
Their nickname is “kamikaze drones” or “suicide drones.”
These can go up to hundreds of miles. So you can launch these from offshore on a ship and then guide them toward your target.
JB (narration): Tony says to also consider China’s growing military might.
TS: In China, we have increasing tension there. The Chinese navy is expanding their presence in the South China Sea.
The U.S. has been the dominant global power for decades. That’s good for the globe, but we are not the dominant military power anymore.
Look at their military personnel. China has twice as many military personnel as we do. Look at their combat tanks. They have twice as many as the U.S.
Also, look at the naval assets. What do you think the U.S. is going to do? Are they going to sit back and watch China gain maritime supremacy? Not a chance.
The only place that the U.S. has a clear superiority is in aircraft.
So what you’re going to see is more orders and more spending in all sorts of defense areas and that translates into revenues and then down to profits.
JB: How should investors view these next five months, rounding up 2022?
TS: We’re down 20% and that’s the definition of a bear market. And so, I think a lot of the pain has already been felt.
Does that mean there can’t be more? Sure. But look at the jobs number that we recently got. The job market is still strong.
And as long as you have consumer spending driving 70% of our economic activity, that’s not a recipe for a severe, drawn-out economic drawdown.
JB (narration): So,while uncertainty persists, you can be certain that various sectors will thrive in these conditions.
JB: Senior Analyst Tony Sagami, it’s always a pleasure to get your insights. Thank you for your time today.
TS: Let’s do it again!
Best wishes,
Jessica Borg
Financial News Anchor
