
3 Defense Stocks With Plenty of Firepower
NEW YORK (TheStreet) -- With Russia intervening in Syria, general instability in the rest of the Middle East and many Republicans eager to increase the defense budget, defense stocks could benefit.
Below are three well-established defense stocks you can invest in now.
1. Raytheon (RTN) - Get Report
Raytheon is a leader weapons areas such as missiles and missile-defense systems. Its economies of scale make it the alpha dog in several markets.
Even after some recent gains (at around $110 a share, the stock is near its 52-week high of $113.36), the stock has plenty of firepower left. This based on earnings that will grow from an estimated $6.66 per share this year to $7.05 next year, during which time it should add half a billion dollars in sales.
And Raytheon has been aggressively moving into new markets. One area is drones, which are increasingly used for both military and civilian purposes. Raytheon is already the leader in the development and manufacture of drone sensors. As world demand for drones takes off, Raytheon will reap the spoils.
Demand is particularly strong in Asia. The recent Singapore Airshow attracted 146,000 attendees and generated $32 billion in deals of different sorts. Analysts reported a pronounced interest in unmanned aerial vehicles, or UAVs, among Asian military delegations.
The U.S. is increasing its use of drones in launching missile strikes against terrorists, while at the same time, police and civilian agencies around the world are increasingly putting them to unarmed use.
Raytheon's stock sports a surprisingly modest trailing 12-month price-to-earnings ratio of 15.7, compared to an average P/E of 19 for its industry. The dividend yield is 2.5%. This stock is a buy up to $118.
2. AeroVironment (AVAV) - Get Report
AeroVironment is another leading manufacturer of drones, is also a good bet now. This California-based company boasts a pipeline stuffed with innovative products that the military brass covets.
AeroVironment commands 30% of the world's unit production of drones, giving it the biggest market share by far of any manufacturer. By contrast, the maker of the well-known Predator drone, General Atomics, only holds an 8% share.
According to a study from Teal Group, an aerospace consultancy, UAV spending will nearly double in the decade from beginning in 2014, from $6.6 billion to about $11.4 billion.
The Teal Group predicts that a increasing numbers of federal organizations, such as the Coast Guard, Border Patrol and even the Forestry Service, will require airborne surveillance and monitoring systems.
The stock fell sharply in September after a disappointing earnings report for the quarter that ended on Aug. 1. At about $21 a share it's now well below its 52-week high of $31.
But the company's growth prospects make a rebound likely. Analysts predict while it will lose money again (9 cents a share) in its current quarter, which ends Nov. 1, but that it will make 6 cents a share in the following quarter and make 18 cents a share in the one after that.
It's a riskier investment than Raytheon, but it also has more potential upside. Investors should consider buying shares up to $27.
3. Honeywell International (HON) - Get Report
For well-diversified investment in the aerospace/defense market, New Jersey-based Honeywell International is the best choice.
Honeywell makes provides a range of commercial and consumer products, engineering services and aerospace systems for a wide variety of customers.
Honeywell has the structure of a diversified company, where three business units rising and falling in their respective markets can offset one another depending on what's happening in the larger economy. The sectors are aerospace, automation and control systems, and performance materials.
The U.S. Army recently awarded Honeywell Aerospace a $41 million contract to continue supplying its combat-proven radar altimeters for use across the Army's full fleet of helicopters. The device is a critical piece of safety and awareness equipment, specifically in the hover phase and in low-level flight.
Honeywell has seen a steady increase in its stock price, which is up 125% in the last five years. Despite its strong position in several markets, its price-to-earnings ratio based on estimates earnings for the next 12 months is less than 15. Meanwhile, earnings per share are expected to grow to $6.65 next year from $6.10 this year. Investors should buy this stock up to $106.
These three companies are great ways of investing in general defense spending, but another opportunity has emerged in recent months that every investor should understand. DARPA, the Pentagon's famous research arm that helped develop the internet and GPS, is at it again. It's developed an innovation so ground-breaking it's been called "the greatest game changer in Army history since the machine gun." Click here now to learn more about this program, and how you can invest in its future today.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.











