Republican Midterm Victory Could Bode Well for Top Defense Stocks

By Lee Jackson Published Nov 7, 9:55AM EST

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The stunning Republican victory on Tuesday will make for a titanic shift in Washington, especially when it comes to the proverbial purse strings. That, in addition to ongoing conflicts in the Middle East, could easily ramp up spending in 2015 in the defense sector. With many predicting that the new Congress will bring a conservative but pragmatic approach to budgetary issues, defense stocks, which have underperformed in October and into November, could see interest for end-of-the-year portfolio buying.

A new research report from Jefferies points out that the defense budget could see an increase due to external conflicts, not the least of which is ISIS, in the Middle East. With the budget deficit the lowest in years, lawmakers also have a little wiggle room. We screened the Jefferies top defense stocks to buy for those with the best upside potential.

Boeing Co. (NYSE: BA) is forging ahead with the new 737 Max and 767 models, and though continued problems with the 787 Dreamliners are still plaguing the aerospace giant, at least they look closer to a more complete resolution. With Qatar making a large fighter jet award at some point before the year is out, Boeing is right in the thick of the battle for the contract. The combination of commercial aircraft and defense business always makes the stock a solid investment choice.

Boeing investors are paid a 2.3% dividend. The Jefferies price target for the aerospace giant is $165. The Thomson/First Call consensus target is at $150.48. The stock closed Thursday at $124.58.

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General Dynamics Corp. (NYSE: GD), like other defense contractors, is having a solid year and makes the list. This worldwide aerospace and defense company is headquartered in Falls Church, Va., and has around 96,000 employees. General Dynamics operates through four business groups: Aerospace, Combat Systems, Marine Systems, and Information Systems and Technology. The U. S. Navy recently awarded the company an $83.8 million contract modification to continue development of the Common Missile Compartment for the Ohio replacement submarine and the United Kingdom’s Successor ballistic-missile submarine. The U.S. government is General Dynamics’ largest customer.

Shareholders are paid a 1.8% dividend. Jefferies has a $142 price target on General Dynamics, while the consensus target is $142.33. Shares closed Thursday at $141.56.

Northrop Grumman Corp. (NYSE: NOC) is the sixth-largest defense contractor by sales. The company is a leading global security company providing innovative systems, products and solutions in unmanned systems, cyber, C4ISR and logistics and modernization to government and commercial customers worldwide. Northrop Grumman’s Aerospace Systems segment designs, develops, integrates and produces manned aircraft, unmanned systems, spacecraft, high-energy laser systems, microelectronics and other systems and subsystems.

Northrop Grumman investors are paid a 2% dividend. The Jefferies price target is $140, while the consensus number is posted at $136.38. Shares closed on Thursday at $138.11.

Raytheon Corp. (NYSE: RTN) is not only likely to benefit from domestic purchasing, but the company has posted large contract sales to the Saudis. The company announced this week it had purchased privately held cybersecurity company Blackbird Technologies for about $420 million. The acquisition will help expand its surveillance and cybersecurity services to clients. Raytheon provides state-of-the-art electronics, mission systems integration and other capabilities in the areas of sensing; effects; and command, control, communications and intelligence systems, as well as cybersecurity and a broad range of mission support services.

Raytheon shareholders are paid a 2.3% dividend. The Jefferies price target is set at $104, and the consensus target is $108.42. Shares closed on Thursday at $104.71.

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With our huge national debt fast approaching $18 trillion, the new majority in Congress will not go overboard on spending. However, these top firms have domestic and international spending to compliment the government and civil business markets. This could provide a tailwind for these stocks in 2015.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.