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3 Aerospace-Defense Stocks to Target in 2017

For a president who talks about success and strength as much as Donald Trump, you can bet that he has some big ideas for this country's military. It's no surprise that the aerospace-defense industry blasted off in the days following his surprise victory, and remains in the top 18% of the Zacks Industry Rank with the 49th spot out of 265.

President Trump has talked about a general ramping up of military spending: more boats in the seas, more planes in the sky, more soldiers on the ground and a modernization of our nuclear arsenal. It's an awfully large and pricey proposal that will take a long time to implement, but there are plenty of global threats to confront from terrorism to unfriendly governments.

So you'd think this would be a carefree relationship, but even the defense industry got stung from the Tweeter-in-Chief. Back in December, President-elect Trump had some tough words for Lockheed Martin and its F-35 fighter jet program, claiming that it was taking too long to complete and costing too much. He also had some words for Boeing in regards to Air Force One. Such comments were felt in the market with some fearing that it could impact fourth-quarter results.

Fortunately, fourth-quarter earnings have been pretty good thus far (including for LMT and BA). The CEOs have even been making nice with the new President in meetings at the White House. So if you're interested in getting some exposure to this highly-ranked industry, below are three stocks that you may want to consider:

Lockheed Martin Corporation ( LMT )

It looks like President Trump and Lockheed Martin Corporation (LMT) are well on their way to letting bygones be bygones. You may remember that The Donald criticized the cost of the F-35 joint strike fighter in one of his infamous tweets. Now the CEO of LMT thinks the new President is a great guy that asks good questions and has no interest in hurting the profits of the world's largest defense contractor. Sure, there's probably a lot of happy talk in there, but LMT doesn't want the new POTUS to throw any more monkey wrenches in what's been a pretty successful story.

Lockheed Martin just reported another solid quarter earlier this week. Fourth-quarter earnings per share of $3.25 were nearly 7% better than the Zacks Consensus Estimate, while also a 23.6% improvement over last year. Total revenues of $13.75 billion were 5% over our expectations and more than 19% on top of last year. Results for the full year were equally as impressive with earnings and revenue beating both the Zacks Consensus Estimates and year-over-year results.

An impressive backlog of more than $96 billion underscores LMT's dependable inflow of orders from the Army, Air Force and Navy, as well as its ability to generate lots of cash. The company has made a number of strategic moves over the years to increase its foothold, including the purchase of Black Hawk helicopter manufacturer Sikorsky Aircraft and the divestment of its IS&GS business division. And though it may seem funny to mention it during these protectionist times, it's a positive that LMT makes more than 20% of its sales from international customers.

Lockheed Martin Corporation Price, Consensus and EPS Surprise

Lockheed Martin Corporation Price, Consensus and EPS Surprise | Lockheed Martin Corporation Quote

Huntington Ingalls Industries ( HII )

If you're in the market for a nuclear-powered aircraft carrier or submarine, then you should really talk to Huntington Ingalls Industries (HII). Fortunately for this company, the US Navy IS looking for an increased military presence on the high seas. During the campaign, then-candidate Donald Trump talked about a 350-ship Navy, which was nearly 30% more than the approximately 270 that the branch already had. Subsequently, the Navy itself came out and said that 355 was more like it. With the new Commander-in-Chief and the world's most intimidating naval force on the same page, HII should be taking some orders soon.

Huntington Ingalls is the nation's largest military shipbuilder. More than 70% of the Navy's fleet was made by the company. Its sheer size is one of its major attributes, since it allows for multi-year stability and consistent free cash flow generation. For example, to get the Navy up to 350 ships as mentioned above, it would take a decade or two. Even before there was a President Trump, HII had outperformed the highly ranked Aerospace-Defense industry by more than 48% to 13%. Furthermore, this company has a Zacks VGM Score of "A" and maximizes shareholder value through both share repurchases and increased dividend payouts.

Huntington Ingalls Industries, Inc. Price, Consensus and EPS Surprise

Huntington Ingalls Industries, Inc. Price, Consensus and EPS Surprise | Huntington Ingalls Industries, Inc. Quote

Northrop Grumman Corp. ( NOC )

This morning, Northrop Grumman Corp. (NOC) continued its string of positive surprises with fourth quarter earnings of $2.66 per share, which was 6.8% better than the Zacks Consensus Estimate. Revenue of $6.4 billion was 12% better than last year's $5.7 billion and also ahead of our expectations. For 2016 as a whole, diluted earnings per share jumped 17% while the backlog improved to $45.3 billion from $35.9 billion in 2015.

NOC is an innovative developer of Intelligence, Surveillance & Reconnaissance (ISR) technologies, which has gained traction with the U.S. government as it seeks to confront and prevent rising security threats across the globe. For example, NOC's unmanned and space businesses have been growing in recent year, including its Global Hawk system.

NOC's systemic and consistent investment in R&D keeps its earnings stream stable despite ever-changing threats. It is well-positioned in high-priority areas like defense electronics, unmanned aircraft and missile defense. The company maintains a strong balance sheet and a strong cash flow position that keeps it financially flexible while still being able implement an incremental dividend, share repurchases and earnings-accretive acquisitions.

Northrop Grumman Corporation Price, Consensus and EPS Surprise

Northrop Grumman Corporation Price, Consensus and EPS Surprise | Northrop Grumman Corporation Quote

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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