"The future looks pretty bright for the defense industry," he said. "Our military spending is seven times that of China. We are a war machine, and while I don't want that, we should try to profit off of it."
"It is what it is," Cramer continued. "Defense is in, and financials are out."
Defense Rules
Defense stocks are "cheap" and should be bought here, Cramer told viewers. The defense spending cycle is continuing, and because the Democrats are afraid of looking weak on security, they should continue to spend on defense if they take over, as well, he said.
When seeking out a defense play, people should look for three things. First, they should look for valuation, Cramer said. "Cheaper is better."
The second thing people should want from their stock, as odd as it sounds, is that it is levered mostly to defense. A lot of these defense contractors are not strictly defense, he pointed out. For example,
Boeing (BA Quote - Cramer on BA - Stock Picks) is the second-largest defense contractor in the country, but it is mostly involved in commercial aircraft.
Finally, people should look out for U.S. contractors, because they are the ones profiting from the military arms deals from the Middle East.
Keeping these three qualities in mind, Cramer named
Alliant Techsystems (ATK Quote - Cramer on ATK - Stock Picks) as his second-favorite defense play. This company, he said, makes bullets, and 87% of its sales come from defense. Plus, it trades at 1.3 times its growth rate and is therefore cheap, he said.
TheStreet.com Staff
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