Defense Stocks

In the current bear market, the best defense is, well…defense stocks. Year to date, the Dow Jones US Select Aerospace and Defense Index is up 7.18% in 2022 versus a 19.9% loss for the S&P 500 index.* Reason: Rising economic and geopolitical risk around the world caused a flight to safety among investors. Weapons makers offer steady cash flows…profit visibility because of long-term contracts…and the ability to pass along rising costs to government customers in an inflationary environment. The defense sector is more than just a defensive play for 2023 and beyond. Wall Street is ­underestimating the growth trajectory of these manufacturers as the US and foreign nations ramp up military spending in response to global tensions. Also, the Pentagon has embarked on a multiyear spending cycle to modernize its badly outdated arsenal, such as replacing the Air Force’s aging bomber fleet with the B-21 Raider and retiring the Navy’s Ohio-class ballistic missile submarines in favor of Columbia-class nuclear subs.

Winning defense stocks now…

General Dynamics (GD) is a major manufacturer of combat vessels, including the new Columbia-class nuclear submarines. The company has raised its dividend 25 years in a row. Recent yield: 2.2%.

Lockheed Martin (LMT). The stock soared 40% last year but has further upside. It has backorders from the US and its allies for 3,100 F-35 Lightning II stealth fighter jets through 2035. Recent yield: 2.37%.

Northrop Grumman (NOC) is developing the new B-21 stealth bomber and Sentinel, the US Air Force’s next-­generation intercontinental ballistic missile system. Recent yield: 1.28%.

*Performance figures are through December 19, 2022.