5 Stocks To Buy As Trump Promises To Spend Big On Defense

President Donald Trump has unveiled plans to boost defense spending at the expense of foreign aid and various environmental programs. Trump’s pledge to significantly increase federal spending related to national security was cheered by Republicans, while his team is preparing to create an infrastructure “task force” that will help carry out the ambitious federal spending program.

Since Trump’s startling election victory in late 2016, stocks have more or less gained momentum. In particular, defense stocks see a boost, thanks to his intention to hike military spending. Banking on such optimism, investing in defense stocks makes all the more sense.

Trump Pledges Military Build Up

Trump sent both the political parties a notice on Feb 27 stating that he intends to significantly raise defense related outlay. He will seek a $54 billion hike in spending on tanks, ships and weapon systems and will trim other priorities, especially foreign aid, environmental programs and domestic agencies by the same amount, an administration official said.

The defense budget will climb 10%, according to the White House, while Trump recommended $30 billion in supplementary military spending for this year. However, other discretionary spending would be reduced in order to pay for it. Foreign aid, one of the smallest parts of the federal budget, is most likely to face “large reductions” in spending. Such a cut in non-defense spending is expected to be the highest since the beginning of Ronald Reagan’s administration.

Trump said that the budget that will be presented to the Congress next month will propose “historic” increase in spending to rebuild the country’s “depleted military” at a time it is required the most. Trump added that his budget would put “America first” and “this budget will be a public safety and national security budget.”

Director of the Office of Management and Budget, Mick Mulvaney said that the White House intends to send a budget to Congress by Mar 16 and have the final plan done by “the first part of May.” However, priorities would definitely include uplifting the military and restoring nuclear capabilities. Citing foreign aids as a target for cutbacks, Mulvaney said that “when you see these reductions, you’ll be able to tie it back to a speech the president gave. We are taking his words and turning them into policies and dollars.”

Two administration officials further said that the planned defense spending hike will be financed partly by “dollar-for-dollar cuts” to the Department of State, Environmental Protection Agency and other non-defense programs. Meanwhile, increase in homeland security and intelligence is also expected under this regime.

Trump Stokes Rally in Defense Stocks

Shares of defense and related companies got a nice lift after Trump said that his first budget will seek a boost in defense spending. The iShares U.S. Aerospace & Defense ETF (ITA) jumped 1.1% toward a record high on Feb 27, with 37 of 39 components trading higher.

Among the heavyweights, shares of The Boeing Company (NYSE:BA) , United Technologies Corporation (NYSE:UTX) , Lockheed Martin Corporation (NYSE:LMT) , General Dynamics Corporation (NYSE:GD) and Raytheon Company (NYSE:RTN) gained 1.1%, 0.3%, 1.9%, 0.4% and 0.9%, respectively. Among these stocks, only United Technologies hasn’t been trading in the record-high territory. Triumph Group, Inc. (NYSE:TGI) was the biggest gainer, which shot up 3.4%.

The broader Industrial Select Sector SPDR (XLI) advanced 0.4% as Trump noted that the country faces an urgent infrastructure problem. He wants to reconstruct America’s roads, bridges and other infrastructure. This led his administration to unveil a proposal to spend $1 trillion over the next 10 years (read more: Top Stock Picks for Trumps Trillion Dollar Infrastructure Plan).

5 Solid Picks

Defense related stocks moved north as Trump calls for swift increase in military spending. Such stocks are likely to see a climb in sales and revenues. For this reason, investors should adopt a bullish stance on such stocks. To top it, demand for more fuel-efficient aircraft, a growing international market and increasing application of unmanned aircraft in warfare have driven sales further. We have, thus, selected five defense related stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Huntington Ingalls Industries, Inc. (NYSE:HII) is involved in the design and construction of non-nuclear ships comprising amphibious assault ships. Being the nation’s largest military shipbuilder, the company continues to boast stable financials and regular cash return to shareholders. In addition, its multi-year stability in shipbuilding is likely to lead to robust cash flow. Huntington Ingalls has a Zacks Rank #1.

Looking at the past performance, the company gained 2.9% in past week and climbed 13.9% over the last one month. Huntington Ingalls outperformed the Aerospace-Defense industry over the last one year period (+66.4% vs. +31.3%).

Hexcel Corporation (NYSE:HXL) develops, manufactures and markets structural materials for use in commercial aerospace, space and defense, and industrial markets. The company has a Zacks Rank #2.

The company rallied 3.1% in past week and climbed 9.2% in the last one month. Hexcel outperformed the Aerospace-Defense Equipment industry over the last one year period (+33.3% vs. +23.9%).

HEICO Corporation (NYSE:HEI) designs, manufactures and sells aerospace, defense, and electronic related products. The company holds a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Coming to the performance history, the company jumped 1.4% in past week and climbed 8.1% in one month. HEICO outperformed the Aerospace-Defense Equipment industry over the last one-year period (+44.1% vs. +23.9%).

Teledyne Technologies Incorporated (NYSE:TDY) provides instrumentation, digital imaging, aerospace and defense electronics, and engineered systems. The company has a Zacks Rank #2.

Looking at the past performance, the company climbed 9.1% over the last 30 days. Teledyne Technologies outperformed the Aerospace-Defense Equipment industry over the last one year (+57.1% vs. +23.9%).

Leidos Holdings, Inc. (NYSE:LDOS) is an applied technology company that offers solutions and services in the national security, health, and engineering markets. The company has a Zacks Rank #2.

Leidos Holdings jumped 4% in past week and climbed 9.1% over the last one month. The company, which is part of the Aerospace-Defense industry, has given a solid return of 25.1% in the last one-year period.

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