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Defense Stocks Thriving Through Sequester Cuts

NEW YORK (TheStreet) -- On May 24 I wrote Defense Stocks Survive Sequester Cuts and since then all nine of the defense stocks I covered then are up. Eight of the stocks are up between 9.1% and 31%. In May only one of the stocks had a buy rating and one had a sell rating with the other seven rated hold. Today the distribution of the ratings is about the same but there are now two sell rated stocks.

It's difficult to explain why sequestration spending cuts have not had an adverse affect on the aerospace sector given the fact that the sector has an underweight rating with 64.9% of the 74 stocks in the sector having sell or strong sell ratings. In addition the sector is 24.9% overvalued. What this shows is that my buy-and-trade strategy works even when the fundamentals are not favorable. Positive technicals have trumped weak fundamentals at least between May 23 and Oct. 2.

Today all nine aerospace stocks are currently overvalued with eight overvalued by 20.5% and 29.5% and all nine gained between 25.9% and 69.5% over the last 12 months. All are above their 200-day simple moving averages reflecting the risk of a reversion to the mean.

A recent negative is that one stock has declined below its 50-day simple moving average, while another five straddle their 50-day SMAs, which could mean that the combination of sequestration cuts and a partial close of the U.S. government my finally be a drag on the aerospace sector.

Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

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