Time to Get Defensive

Amanda Heckman|April 29, 2023

The warning signs keep flashing…

GDP growth slowed to a crawl in Q1… coming in at just 1.1%.

The Federal Reserve’s preferred inflation gauge – core PCE – came in at 4.9%. That was up from 4.4% in Q4 of 2022.

And housing starts fell by 0.8% in March… while pending home sales dropped by 5.2% month over month and 23.2% year over year.

With growth stagnant and inflation still much higher than the Fed wants to see, it seems the road ahead may get even rockier for Americans.

But while things aren’t looking great in most corners of the economy…

One sector is catching fresh bids and holding steady…

Defense stocks.

As Andy told you on Tuesday, global military spending reached $2.2 trillion last year. That’s a new record.

America’s defense budget will likely balloon to $842 billion in fiscal 2024. That would be a $23 billion increase over 2023’s budget… and a $100 billion jump from 2022’s.

All that spending has given defense stocks reason to cheer. This week we got a picture of just how well these stocks did in Q1.

Big Business

It’s no surprise that global conflicts are big business for big defense contractors. And right now, the big money is going toward the Ukraine-Russia war and U.S.-China tensions.

Just take a look at a few recent earnings results…

Aerospace parts supplier Raytheon Technologies (RTX) posted an earnings beat in Q1. Sales came in at $17.2 billion, compared with expectations of $16.7 billion. The company saw $21 billion in new orders and had a record backlog of $180 billion.

It also boosted its dividend from $0.55 per share to $0.59 per share.

Aerospace and defense firm General Dynamics (GD) reported that revenue in Q1 rose to $9.88 billion, compared with $9.39 billion a year ago. That’s a 5.2% rise.

Orders in the company’s combat systems business unit, which makes tanks and weapons, were at their highest level in eight years. In the ships and submarines segment, revenue increased 12.9% year over year.

Defense and security company Northrop Grumman (NOC) reported on Thursday that it, too, beat Q1 earnings expectations thanks to higher demand for weapons. Sales rose 6% to $9.3 billion.

And Lockheed Martin (LMT), which reported an earnings beat on April 18, also had good news to share this week.

The company signed a $4.79 billion contract with the U.S. Army to build rockets. And it will pay out a Q2 dividend of $3 per share. This comes on top of $500 million in share repurchases and $784 million in dividends paid out in Q1.

There’s a steady stream of negative economic news. It’s putting investors on edge.

But U.S. and global defense spending are rising every year. Military tensions show no signs of easing.

Defense stocks are as sure a bet as you can get these days to protect your portfolio against what lies ahead.