Defense giant Raytheon (RTN) looks good to Jim Cramer at a time when the United States and other countries seem poised to boost military spending.
"Whether you agree or disagree, defense spending is on the rise under the current administration," Cramer said during a private call with members of his Action Alerts PLUS club for investors. "It's just clear that the Republicans love to spend more on military."
Cramer recently added Raytheon to his charitable portfolio, and said he's looking to buy even more shares if the price is right. After all, he noted the U.S. budget deal that Congress and President Trump recently approved calls for boosting the Pentagon's budget by $80 billion in fiscal 2019, meaning the government will have a lot more money to pay defense contractors.
"These trends keep Raytheon's business growing, which is great for shareholders," Cramer said. "And while defense spending in the US is very important to Raytheon, this is much more than a U.S. defense-spending story."
He noted that some 32% of Raytheon's revenues come from overseas. For example, Cramer said that Romania recently signed a deal to buy Raytheon's Patriot missile-defense system in a deal the company believes could be worth $2 billion. Poland is also close to finalizing a projected $4 billion and $5 billion contract with the company, while Sweden seems likely to sign what could be a $1 billion agreement, Cramer said.
"Worldwide, Raytheon plays a role in deterrence -- meaning that countries use Raytheon's integrated air- and missile-defense capabilities to prevent outside threats," he said. "If you need any indication of how the stock does during times of geopolitical tension, go back to the charts and see how it performed last August when threats were on the rise."
Lastly, Cramer noted that Raytheon was one of the big winners from the GOP corporate-tax-cut bonanza. RTN will see its tax rate nearly halved from about 30% in 2017 to around 19% this year.
Cramer said that might prompt the defense giant to return shareholder value through stock buybacks and dividend increases. "We want to be bigger in RTM," he said.
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