What do you get when you mix blockbuster earnings with beaten down shares? Maybe a great investing opportunity in a key sector.
Consider my MoneyShow Chart of the Day, which shows the year-to-date performance of defense stocks General Dynamics Corp. (GD) in red, RTX Corp. (RTX) in blue, Northrop Grumman Corp. (NOC) in green, and Lockheed Martin Corp. (LMT) in orange. I’ve included the SPDR S&P 500 ETF (SPY) as a benchmark in black.
You can see that the SPY has returned about 12.6% YTD – beating the gains of most major defense contractors handily. For its part, Northrop is down 8.4%.
It all seems counterintuitive when you consider the never-ending war between Ukraine and Russia, the ongoing conflict in the Middle East, and the stated goal of the Trump Administration to spend hundreds and hundreds of billions of dollars building up the nation’s military. So, what gives?
The midterm elections are one potential factor. Prediction markets and many polls see the House flipping Democratic, while the Senate could turn blue, too. That could derail Trump’s policy priorities. Even the administration itself has been making noise about streamlining and rationalizing the defense procurement process – something that could impact contractor margins.
But in an unstable world where many countries acknowledge the need to rearm and replenish defensive stockpiles, spending is likely to rise regardless of who’s in power. Not just in the US, but abroad.
No wonder why RTX and Northrop both reported fantastic Q3 results this week. They also boosted their full-year earnings targets, and projected a solid 2027 to boot. RTX’s order backlog ballooned to a record $340 billion, while Northrop’s rose to $110 billion.
Defense stocks have been playing defense all year. Could a big shift be coming soon?