Jim Cramer's Four Best Stock Picks for the Defense Sector

NEW YORK (TheStreet) - As the stock market wraps up a record-breaking year, TheStreet's Jim Cramer has selected 12 sectors where he thinks investors should put their money.

Among them is defense. Defense stocks are up nearly 7% this year as measured by the S&P Aerospace & Defense Select Industry Index while the S&P 500 is up 11%. In each of Cramer's 12 sectors, "you can almost throw darts and win with a couple of rare exceptions," he wrote in Here Are 12 Sectors to Bet On on the Real Money Web site.

"With the Senate going Republican and a wartime Secretary of Defense coming, this is a moment where any defense stock's going to win because it is inconceivable to most investors that the defense budget gets restored to pre-sequester levels," Cramer wrote.

We've listed Cramer's picks alongside the TheStreet Ratings, TheStreet's proprietary stock rating tool which projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 30 major data points, TheStreet Ratings uses a quantitative approach to rating stocks. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.


Cramer's analysis and that of TheStreet Ratings may differ as Cramer may evaluate stocks without regard to time horizon, while TheStreet Ratings uses consensus estimates for the next 12 months only. In addition, changes in TheStreet Ratings may lag Jim Cramer's analysis, as consensus estimates may take some time to change meaningfully.

Cramer made three "dart throws" in the defense sector. Keep reading to see Cramer's top pick for defense.

General Dynamics

General Dynamics (GD) is an aerospace and defense company that offers a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; shipbuilding; and communication and information technology systems and solutions.

General Dynamics' 2013 sales were approximately $31 billion.

Market Cap: $48 billion

52-week-high: $146.13 on Nov. 28

52-week-low: $88.85 on Dec. 4, 2013

Year-to-date Return: 51%

TheStreet Ratings team rates GENERAL DYNAMICS CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate GENERAL DYNAMICS CORP (GD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, growth in earnings per share, good cash flow from operations and increase in net income. We feel these strengths outweigh the fact that the company shows low profit margins."

You can view the full analysis from the report here: GD Ratings Report

Lockheed Martin

Defense contractor Lockheed Martin (LMT) is a global security and aerospace company based in Bethesda, Md., that focuses on defense, space, intelligence, homeland security, and information technology, which includes cyber security.

Lockheed Martin's 2013 sales were approximately $45 billion.

Market Cap: $60 billion

52-week-high: $192.94 on Nov. 4

52-week-low: $135.38 on Dec. 4, 2013

Year-to-date Return: 28%

TheStreet Ratings team rates LOCKHEED MARTIN CORP as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate LOCKHEED MARTIN CORP (LMT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, good cash flow from operations, notable return on equity and increase in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

You can view the full analysis from the report here: LMT Ratings Report

Raytheon

Raytheon (RTN) is a technology and innovation leader specializing in defense and other government markets throughout the world. The Waltham, Mass.-based company develops advanced technology-integrated products, services and solutions in four core defense markets: sensing; effects; command, control, communications and intelligence (C3I); and mission support, as well as other important markets, such as cyber and information security.

Raytheon's 2013 sales were approximately $24 billion.

Market Cap: $33 billion

52-week-high: $107.80 on Nov. 28

52-week-low: $85.21 on Dec. 4, 2013

Year-to-date Return: 17%

TheStreet Ratings team rates RAYTHEON CO as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate RAYTHEON CO (RTN) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and increase in net income. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

You can view the full analysis from the report here: RTN Ratings Report

Cramer's top pick for the defense sector is Northrop Grumman (NOC) "if only because Lockheed didn't have good things to say after last quarter."

Northrop Grumman

Northrop Grumman provides innovative systems, products and solutions in unmanned systems; cybersecurity; command, control, communications and computers (C4) intelligence, surveillance, and reconnaissance (C4ISR); and logistics and modernization to government and commercial customers worldwide through four segments: Aerospace Systems, Electronic Systems, Information Systems and Technical Services.

Market Cap: $28 billion

52-week-high: $142.51 on Nov. 28

52-week-low: $107.21 on Dec. 12, 2013

Year-to-date Return: 22%

TheStreet Ratings team rates NORTHROP GRUMMAN CORP as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate NORTHROP GRUMMAN CORP (NOC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

You can view the full analysis from the report here: NOC Ratings Report

-Written by Laurie Kulikowski in New York.

Follow @LKulikowski

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