Cramer: Best defense stocks ripping up the market

Cramer: What's driving defense?
Cramer: What's driving defense?   

With personal political views aside, Jim Cramer could not help but notice that investors are witnessing one of the greatest ironic moments in history right now.

In the United States, President Obama has made a conscious decision to stop trying to be the world's policeman. Regardless of how anyone feels about that policy, the fact remains that Congress has made vast cuts to defense spending.

Thus, the U.S. is no longer "Team America World Police."

So, given that the U.S. has scaled back its foreign defense budget, one would think that the aerospace and defense groups are doing terribly. Right?

Wrong! This is because Obama has notified allies around the globe that they need to start fending for themselves. as a result, the government has also taken a much more permissive attitude towards selling military hardware to foreign regimes.

"In short, the Obama administration may not want to be the world's policeman, but they seem happy for the United States to become the world's arms dealer," the "Mad Money" host said. (Tweet This)

Read MoreAsia defense spending: New arms race in South China Sea

So with that said, who will be the biggest winners of this group?

Cramer outlined the stocks that he thinks investors should buy in order to capitalize on the growing international arms trade.

Patriots, planes and copters

The patriot missile is manufactured at Raytheon's Integrated Air Defense Center in Andover.
John Tlumacki | The Boston Globe | Getty Images
The patriot missile is manufactured at Raytheon's Integrated Air Defense Center in Andover.

One thing that Cramer knows is that missile defense systems have become very popular, especially considering the turmoil with Russia, and the possibility that the U.S. will strike a nuclear deal with Iran. When it comes to missile defense, the top player in Cramer's perspective is Raytheon.

The company is responsible for the Patriot Missile defense system, and considered the best in the market. It scored big time last month with a contract to provide Poland with the missile defense system, and had a $2 billion deal with an undisclosed international customer.

Cramer also thinks that other major players in the missile defense world are Lockeed Martin, and Northrop Grumman.

As for aircraft for both planes and helicopters, the most sought after plane that nations can purchase is Lockheed Martin's F-16. Boeing also is the go to stock for planes. However, it has been hit hard lately because of the strong dollar and weak euro.

So how do you know who to buy and when?

"The truth is, many of the biggest aerospace and defense names have been experiencing magnificent multi-year runs, with a number of them setting new all-time highs in recent months" Cramer said. (Tweet This)

However, there are three names that have pulled back lately: Boeing, Lockheed Martin and Raytheon.

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Put all of this together, Cramer thinks that Raytheon is the one to buy. Its missile defense system, and because it only trades at 14.5 times next year's earnings with a solid yield, makes the company attractive, he said.

He also likes Lockheed Martin at current levels, which is also inexpensive. He also suspects that the stock could get a boost when the F-35 Joint Strike Fighter is likely to be declared ready for combat by the Marines this summer, and the Air Force is expected to follow up next year.

"The group's been ripping but it's still cheap," Cramer said. "It's a logical place to look for buys in a market that can't seem to get out of its own way."

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