3 Defense Stocks in Focus as North Korea Experiments H-Bomb

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On Sep 3, North Korea successfully tested a hydrogen bomb - its sixth and largest nuclear device - that has been tested since 2006. Per the predictions, North Korea desires to be recognized as a nuclear state like Russia with the test of this nuclear bomb.

Notably, the test sent jitters through global financial markets, as a result of which the broader market indices slipped on Sep 5. Also, it has considerably increased pressure on the Trump administration, with this nuclear test being the most severe foreign affairs emergency that the United States has witnessed in years.

On a bright note, U.S. defense stocks took a surge following this nuclear test, which indicated at yet another altercation between North Korea and America.

Why the Bomb Is a Threat

The hydrogen bomb, which is claimed to be small and light, can be mounted onto an intercontinental ballistic missile. In fact, the test triggered a 6.3 magnitude tremor around the area of its test site.

Also, North Korea's Parliamentary Defense Committee estimated that the bomb had a yield of 100 kilotons. This indicates that it is seven times more powerful than the bomb dropped on Hiroshima (13 kilotons) and five times more powerful than the one dropped on Nagasaki (20 kilotons).

Earlier, North Korea had made claims of testing such weapons but failed to succeed. However, in a recent televised statement, the country declared that this time they succeeded and guaranteed that North Korea now possesses a credible nuclear warhead.

Moreover, on Aug 29, North Korea had fired a missile that passed over Hokkaido - the second largest island of Japan - before landing in the sea. Japan's Prime Minister, Shinzo Abe, stated the incident to be exceptional, serious and severe threat to the country itself. U.S. President, Donald Trump, also responded by saying 'all options on table' when it comes to dealing with Pyongyang.

Meanwhile, North Korea has been striving toward becoming a nuclear power over the last few years. Also, the relationship between the United States and North Korea has significantly become unpleasant in last few months. A frequent cross-border missile test exchanges have added to the woes for both the nations. On top of that, last month, Trump said that threats coming from North Korea "will be met with fire and fury," further strengthening the inter-country tension.

Therefore, we note that if North Korea has in fact effectively tested a hydrogen bomb, then the threat to the United States and its allies raises considerably.

How United States Reacted

In response to the news of the hydrogen bomb test, the U.S. Defense Secretary, James Mattis, gave a strict warning to North Korea. Mattis said that if North Korea involves in any act of violence against the United States or its allies then it would have to face a massive military response.

However he also offered a word of reassurance to North Korea's reclusive leader, Kim Jong-un. Mattis added that United States does not intend to totally eradicate the country although it has many options to do so.

Over the last few weeks, the Trump administration has hinted that it will search for additional steps to isolate North Korea's economy subsequent to its latest actions, particularly in connection with testing of missiles and nuclear weapons.

To this end, the United States may increase pressure on China to discontinue its oil imports to North Korea, a move which can cripple the country in economically.

Defense Stocks in Focus

The prospects of the U.S. military action against North Korea have also increased following Mattis' stern warning. In light of the recent events, the U.S. defense stocks are likely to witness considerable gains in the coming days. Here are few stocks in the defense space that are expected to grow.

Lockheed Martin Corp.LMT , the largest defense contractor in the world, possess some of the high-profile missile defense programs including the Terminal High Altitude Area Defense System, Joint Light Tactical Vehicle and PAC-3 Missiles.

The company currently carries a Zacks Rank #3 (Hold) and its projected EPS growth for the next five years is 6.2%. The Zacks Consensus Estimate for the current-year earnings moved up 0.7% over the last 60 days.

Moreover, the stock was up 1.7% in the last month, outperforming the broader industry's loss of 0.4%.

Raytheon Co.RTN designs, develops, and produces missile systems for critical requirements, including air-to-air strikes, surface navy air defense, land combat missiles, guided projectiles and directed energy weapons. Notably, its PATRIOT missile and Standard missiles are very popular defense missile systems. Moreover, the company's next-generation solutions include the air and missile defense radar, which enable it to support the Pentagon with advanced capabilities to counter emerging threats.

The company's projected EPS growth for the next five years is 9.7%. The Zacks Consensus Estimate for the current-year earnings inched up 0.4% over the last 30 days. Currently, Raytheon carries a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Also, the stock has rallied 5.5% in the last month, outperforming the broader industry's gain of 1.8%.

L3 Technologies, Inc. 's LLL portfolio includes ballistic missile intercept systems and various missile programs.

The company currently carries a Zacks Rank #3 and its projected EPS growth for the next five years is 5.9%. The Zacks Consensus Estimate for the current-year earnings climbed 0.2% over the last 30 days.

Furthermore, the stock was up 3.6% in the last month, outperforming the broader industry's gain of 3%.

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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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