Global Arms Sales Hit Post Cold War Peak: 4 Stocks to Watch

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A new report from the Stockholm International Peace Research Institute (SIPRI) shows that global arms sales conducted over the last five years have hit their highest point since 1990. India continues to lead the list and remain the world's largest importer as far as the defense sector is concerned.

Other notable importers are the Arab states from the Gulf region, which are engaged in conflicts within Yemen, Syria or inside their own territory. The relationship between some of these states and Iran is far from friendly.

India Heads Importers List

India contributed 13% of all global arms importers during the period extending from 2012-16. Next up on the list are the likes of Saudi Arabia, the UAE, China and Algeria, as per SIPRI. Previously, during the period from 2007-11, around 9.7% of total global arms imports could be attributed to India.

The extent of India's purchases is understandable, given that India faces a hostile geopolitical environment. On one hand it has to deal with its long standing and nuclear armed competitor Pakistan. Also, it has to prepare to deal with China's growing military capabilities.

In order to reduce the impact of the increasing collaboration between China and Pakistan, India has tried to improve defense ties with the U.S. as well as countries in South East Asia, such as Vietnam. However, the inability to develop indigenous weapons means that India remains largely dependent on imports to satisfy its growing requirements.

Trump Win Boosts Defense Stocks

Trump's surprise victory sent jitters through the global stock markets. However, defense companies remained largely unaffected and are expected to benefit from the policies of the new administration. Despite the fact that Trump has slammed some sector heavyweights, his approach toward the industry could lead to a marked improvement compared to the last 10 years.

In fact, Trump has vehemently criticized Obama administration for imposing budget caps on the U.S. military. The new President's promises to raise more troops and plans to ramp up funds for major defense players have largely been supported by the upside in stocks from the sector since the release of election results on Nov 8, 2016.

Also, soon after taking office, Trump outlined a tough stand against ISIS and other Islamic terror groups, clearly stating his stand point of zero tolerance for terrorism. This in turn must have raised hopes of increased demand for defense products, thereby buoying optimism for this sector. (Read: 3 Defense Stocks Set to Beat Q4 Earnings )

Stocks to Watch

Lockheed Martin CorporationLMT is the largest U.S. defense contractor with a platform-centric focus that guarantees a steady inflow of follow-on orders from a leveraged presence in the Army, Air Force, Navy and IT programs.

Additionally, this Zacks Rank #3 stock is likely to gain from its solid presence in the international market. Currently, it is negotiating with the Indian government to set up a facility to produce the F-16 fighter jet within that country.

The Boeing CompanyBA is of the major players in the defense business, which stands out among its peers by virtue of its broadly diversified programs, strong order bookings and order backlog. The company's 2016 defense deliveries stood at 185 units.

Internationally, the company is witnessing strong demand for defense products, such as fighter jets, the rotorcraft line-up and 737-based military derivatives. The stock has a Zacks Rank #3.

Huntington Ingalls Industries, Inc.HII is the country's largest military shipbuilder. Huntington Ingalls continues to boast stable financials and regular cash returns to shareholders. In addition, its multi-year stability in shipbuilding is likely to lead to robust cash flow. The stock has a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Northrop Grumman CorporationNOC has developed into one of the largest U.S. defense contractors in terms of revenue, with a major platform-centric focus. The company has a strong presence in Air Force, Space & Cyber Security programs.

Foreign military sales provides much needed respite at the time of negative defense budget revisions and acted as a key performance catalyst for the Zacks Rank #3 Northrop. The international market accounted for 13.1% of its business in 2016.

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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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