The Best Defense Stocks to Buy

What companies can provide safe harbor in a volatile Pentagon funding environment?

Motley Fool Staff
Motley Fool Staff
Feb 6, 2019 at 1:00AM
Energy, Materials, and Utilities

On this segment of Industry Focus: Energy, The Motley Fool's Nick Sciple and contributor Lou Whiteman discuss the best large-cap defense stocks to buy right now.

A full transcript follows the video.

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This video was recorded on Jan. 31, 2019.

Nick Sciple: Before we go away, we've given a good overview of what's impacting these defense contractors on the short-term when it comes to the budget as well as the opportunities over the long-term with these new weapon delivery vehicles. As you look out into the defense industry today, which company or companies are you most excited about their future prospects?

Lou Whiteman: Lockheed Martin can't help but impress. Lockheed Martin, for years, was tied to the F-35. The F-35 is an amazing program. It's going to be $1 trillion program for Lockheed and its subcontractors over the life of the program. What Lockheed has done very well, especially in the last few years, is there's a lot more than just the F-35 to get excited about. We talked about hypersonics, we talked about their Missile Defense and their missiles. There are a lot of ways for Lockheed to win, even looking at the recent earnings. I just wrote something about this. 2019, we'll see what the budget does. But over time, there are so many ways that Lockheed Martin can win. It's a great company to just hold on to and weather the storm.

Among the big guys, if there was one that feels like a bargain, but I've been saying this a while and they haven't come through for me yet, General Dynamics has been in the penalty box almost since the Great Recession because of its Gulf Stream arm. The business ... industry just has not come back from the recession. I believe Gulf Stream is coming back. I believe as it does, General Dynamics will leave the penalty box, and its multiple relative to its peers will improve. It should outperform its peers. I said that six months ago. We're still waiting. I still believe it. I still like General Dynamics. But I'm losing confidence that this even a 2019 story, so I would understand investors not jumping in right now.