Have These 5 Best Defense (Stocks) Become The Best Offense (Stocks)?

Jan. 10, 2019 6:16 AM ETGD, LLL-OLD, LMT, NOC, RTX101 Comments

Summary

  • When stock prices are moving in dramatic fashion either to the upside or the downside, it is very difficult for most investors to see beyond the price action.
  • I saw the performance of these five great businesses as spectacular in 2018.
  • FAST Graphs analyze out loud video: Lessons on Value Investing Lockheed Martin, General Dynamics, Raytheon, Northrop Grumman, and L3 Technologies.

Introduction

Nothing clears the palate of a diehard value investor better than a good old-fashioned bear market. In calendar year 2018 - and especially December 2018 - we were given what I would call a bear market. However, not all bear markets are the same. Sometimes bear markets occur because of a bad economic scenario such as a recession. But that was not the case in 2018. In fact, I could arguably state that 2018 was a great year for the market and a great year for many business enterprises. To my way of thinking, the 2018 bear market is the best kind of all.

Allow me to explain. Many great businesses had become overvalued as we entered calendar year 2018. Consequently, from a value investor’s perspective, many great businesses were not great investments because of excessive valuation. This was especially true with the aerospace and defense subsectors.

Moreover, excessively high valuations that started manifesting in 2016 were the exact antithesis of excessively low valuations that we experienced coming out of the great recession of 2008. To summarize, we went from ridiculous undervaluation to unjustified overvaluation almost equally over the course of the last decade. In other words, five undervalued years brought us five overvalued years.

Furthermore, 2018 has potentially delivered the opportunity to invest in a good industry with many excellent companies at valuations that once again makes sense. Therefore, as a twist on the old adage “the best defense is a good offense” - I offer these five best Aerospace and Defense stocks as attractive offensive research candidates for double-digit future returns and above-average growing dividend streams. In other words, I believe these defense stocks are positioned to score a lot of performance points over the next 3 to 5 years.

Portfolio Review: 5 Best Defense (Stocks)

FAST Graphs Portfolio ReviewFAST Graphs analyze out loud video: Lessons on Value Investing Lockheed Martin (LMT), General Dynamics (GD), Raytheon (RTN), Northrop Grumman (NOC), and L3 Technologies (LLL):

Summary And Conclusions

When stock prices are moving in dramatic fashion either to the upside or the downside, it is very difficult for most investors to see beyond the price action. These five top Aerospace and Defense companies presented in this article and the video represent quintessential examples. In each case, the price action of these five strong businesses was horrible in 2018. Consequently, most investors would refer to them as performance dogs over calendar year 2018.

In contrast, I saw the performance of these five great businesses as spectacular in 2018. Earnings growth for each of these five aerospace and defense companies was phenomenal and each of these dividend growth stocks lived up to their names with above-average dividend growth in 2018. In simple terms, each of these companies had great 2018’s from the perspective of operating results. The only problem that each of them was faced with was excessive valuation that ran into a nervous marketplace.

Consequently, the drops in price were justified based on valuations that were higher than fundamentals indicated. However, I did not see this as a bad thing. Instead, I saw it as an opportunity to get offensive with defense stocks. Therefore, I offer each of these businesses as attractive research candidates. I believe they all provide exceptional total returns as a function of above-average capital gains and dividend growth going forward.

This article was written by

Chuck Carnevale profile picture
60.47K Followers
Maximize your income with the world’s highest-quality dividend investments
Charles (Chuck) C. Carnevale is the creator of FAST Graphs. He is also Co-Founder of The Dividend Kings, along with Brad Thomas and Adam Galas (Dividend Sensei), offering a premium service on Seeking Alpha's Market Place. Chuck is also Co-Founder of an investment management firm. He has been working in the securities industry since 1970: he has been a partner with a private NYSE member firm, the President of a NASD firm, Vice President and Regional Marketing Director for a major AMEX listed company, and an Associate Vice President and Investment Consulting Services Coordinator for a major NYSE member firm. Prior to forming his own investment firm, he was a partner in a 30-year-old established registered investment advisory in Tampa, Florida. Chuck holds a Bachelor of Science in Economics and Finance from the University of Tampa. Chuck is a sought-after public speaker who is very passionate about spreading the critical message of prudence in money management. Chuck is a Veteran of the Vietnam War and was awarded both the Bronze Star and the Vietnam Honor Medal.


Disclosure: I am/we are long GD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (101)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.