Raytheon (RTX)

It has slid down a bit and is negative for the year, like the market. We are coming up to the seasonally strong period for this sector. If it starts to show support, take another look, perhaps in late November.

(A Top Pick August 9, 2017. Up 12%). He still really likes this. The stock has come down because geopolitical risk seems less urgent to many people, but he thinks the risk is still there and that it supports continued investment. It has consolidated and could be starting to break out again.

There is great long term growth in the defense sector. The recent trade discussions caused a pullback in the sector early this year, but is now recovering. This is a great time to be a buyer.

He has never owned a defense stock, as it goes against his personal principals. Under the Trump Administration, now is the time to own a defense stock. Trading at 20 times forward earnings, it is not cheap. A clean balance sheet, but he would have to know their order back log. With global rising tensions, there is a lot of runway ahead (unfortunately). (Analysts’ price target is $238)

He likes the aerospace and defense sector. It has great international exposure with missile and cyber defense as their top products. The valuation is at historical highs, but is not out of the ballpark. Yield 1.6%. Analysts’ price target is $237.85)

An aerospace company positioned in missile defence. With North Korea and the Middle East in the news, there's been alot of interest in this stock. This will continue to move up. You can take a partial profit.

(A Top Pick June 13/17 Up 33%) They are focused on missiles and cyber security. It is the future of warfare. North Korea and Iran are leading to large and growing budgets in defense. He continues to like it.

Defense contractors have performed well over the past year, reflecting the election of Donald Trump and the expectation that he (and Republicans generally) will be good for defense spending. However, the multiple has grown quite high, above its historic average.

He prefers Northrup to Raytheon because Northrup’s entire backlog is in classified projects, which is where there is the most growth (Cyber, hypersonics, and space). Raytheon is number 2 and is well-exposed to those spaces. Northrup’s products are younger, which means their margins on them will grow for a longer period. Defense is the best idea he has in general. The defense cycle is 7-10 years long, it is recession-proof, and it this cycle started only a few years ago.

U.S. defence spending is ramping up, so the government will throw money at companies like Raytheon in the next few years.

Missiles and Missile defense is their number one business. It is firing on all cylinders. Now you have a higher free cash flow outlook. They boosted their pension deduction while tax rates are still high. It raised their free cash flow projections. (Analysts’ target: $231.40).

Not a name he holds, but is certainly something he watches. All these defence names continue to move higher, and their charts are beautiful. Great names to own. If you own he wouldn't sell, but watch it for any downturns. Trading at 21X earnings with a long-term EPS estimate of about 9%. A little expensive, but most industrial names are pushing higher. Most of these names are benefiting from tax reform and we’ll probably see more defence spending.