Military Outlays Boost Factory Orders: 4 Stocks to Gain

On Feb 4, the U.S. Census Bureau announced that new orders for manufactured goods in December rose to the highest level since August 2018. Military spending and robust demand for defense aircraft lifted factory orders by 1.8% to a seasonally adjusted $499 billion in December from November. The defense industry is already gaining traction banking on an uptick in new contracts. Thus, investing in some of the solid defense players won’t be a bad idea.

Military Spending Lifts Factory Orders

Per the report of the U.S. Census Bureau, new orders for long-lasting durable goods rose 2.4%, driven by airplanes and computers.

Higher demand for defense aircraft and parts helped new orders in this segment to rise 168.3% against 69.1% drop in the previous month. Further, new orders for defense search and navigation equipment increased to 69.6%, while search and navigation equipment orders rose 4.6%.

Defense Contracts to Boost the Space

The aerospace and defense industry is one of the biggest economic drivers of the United States. The space is generally in the limelight due to geo-political unrest. Contracts awards from the government boost the industry.

Additionally, some major contracts and awards in January show that the industry is on a growth spree and defense factory orders increase of 168.3% may only be the beginning of the uptrend.

At the beginning of 2020, L3Harris Technologies won a $28 million award for F-16 training system upgrades. The award granted by Greece will help L3Harris upgrade existing Hellenic Air Force F-16 Aircrew Training Devices to the F-16V configuration. On the same day, the company’s Greenville, TX division, which works on classified aerospace programs, received a $9 million award to support South Korea's Peace Pioneer program.

A private player, Airbus Helicopters Inc., was awarded $38 million for logistics support and repair maintenance of UH-72 helicopters.

On Jan 30, Lockheed Martin received $77 million for its Missiles and Fire Control unit to work on the missile defense systems for Bahrain, South Korea, Germany, Japan and many other countries. The next day, Lockheed Martin’s Aeronautics division received a $24 million contract for F-16 retrofit.

4 Stocks to Buy

Given the positive developments in the aerospace and defense industry, we have shortlisted four stocks that carry a Zacks Rank #1 (Strong Buy) or #2 (Buy) and are poised to return well.

HEICO Corporation HEI designs, manufactures, and sells aerospace, defense, and electronic related products and services. The company’s expected earnings growth rate for the current year is 17.8% compared with the Zacks Aerospace - Defense Equipment industry’s projected earnings growth of 8%.

The Zacks Consensus Estimate for the company’s current-year earnings has been revised 6.3% upward over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Leidos Holdings, Inc. LDOS provides services and solutions in the defense, intelligence, civil, and health markets. The company’s expected earnings growth rate for the current year is 14.2% compared with the Zacks Aerospace - Defense industry’s projected earnings growth of 10.8%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 0.8% upward over the past 60 days.

Teledyne Technologies Incorporated TDY provides instrumentation, digital imaging, aerospace and defense electronics, and engineered systems.The company’s expected earnings growth rate for the current quarter is 15.8% compared with the Zacks Aerospace - Defense Equipment industry’s projected earnings growth of 7.2%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 0.4% upward over the past 60 days.

CAE Inc. CAE provides training solutions for the civil aviation, defense and security, and healthcare markets. The company’s expected earnings growth rate for the current quarter is 22.7% compared with the Zacks Aerospace - Defense Equipment industry’s projected earnings growth of 14.5%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised nearly 1% upward over the past 60 days.

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