It is no surprise to see aerospace and defense companies vaulting higher on the back of Iran's retaliation against the U.S. Defense is always a great place for investors to go when it comes to geopolitical conflict.
The question is whether now, given current valuations and potential revenue and earnings among the likes of General Dynamics (GD) - Get Report, Northrop Grumman (NOC) - Get Report, Raytheon (RTN) - Get Report, Lockheed Martin (LMT) - Get Report, L3Harris Technologies (LHX) - Get Report and others, is the time to pile in.
The sector collectively knocked it out of the park last Friday after the drone strike from the U.S. that killed Maj. Gen. Qassim Soleimani, leader of the Quds Force of the Islamic Revolutionary Guard Corps, and officials from several Iraqi militias.
The question now is whether it makes sense to pile in indiscriminately into the sector, or whether to continue to gauge the direction of there fast-moving U.S.-Iranian conflict before committing cash to producers of war-related technology and equipment.
With the stocks generally trading in line with escalating and easing tensions between the U.S. and Iran, analysts including J.P. Morgan’s Seth Seifman are recommending a more cautious approach to the group.
An all-out war would bring much more spending but we believe both sides seek to avoid this, even if it is a possibility,” Seifman wrote in a research note on Monday before Tuesday evening’s Iranian counterattack.
“With so many unknowns, however, we are reluctant at this time to embrace last week’s U.S. strike as an opportunity to buy defense stocks more aggressively with a longer time horizon,” he said.