×

Why defense stocks could keep soaring no matter who wins the election

Two defense stocks hit 52-week highs this week, and may be heading higher.

In a time of international market volatility and global conflict, some analysts say defense contractors like Lockheed Martin and L-3 Communications will continue to thrive.

And the future of defense spending, and of these stocks, may not depend on who wins the election in November.

"I do think they will go higher," Gina Sanchez of Chantico Global said Tuesday on CNBC's "Trading Nation." "The fundamentals support them; the fundamentals are rather scary fundamentals. ... We have seen an increase in conflict around the world, and that has not only increased U.S. defense spending, but it's also increased spending by its allies."

Sanchez noted that one-fifth of Lockheed Martin's earnings come from abroad.

"And if you look at both candidates, [Hillary] Clinton is hawkish, and she's seen as likely supporting a strong military. And we know that [Donald] Trump is in favor of expanding the military, so I think the defense contractors on either side of that ticket are going to win."

Lockheed Martin on Tuesday announced second quarter earnings of $3.32 per share, an increase of 11 percent year over year, beating analysts' expectations.

L-3 Communications, a defense contractor that operates through Aerospace Systems, Electronic Systems, Communication Systems and National Security Systems segments, announces its second quarter earnings before the market opens Wednesday.


In March, the defense contractor announced its first quarter diluted earnings of $2.08 per share versus $1.38 in the first quarter of 2015.

No matter which candidate wins the presidency, history shows that defense spending does not quite vary with the party in power, said Richard Safran, director at Buckingham Research.

Safran calls defense stocks rather "acyclical" from an economic perspective, generally moving in 20-year cycles. He said Lockheed Martin's earnings surprised him on their strength "all the way around."

"It was $100- to $200 million in sales better than I expected," Safran told CNBC, noting that missile sales beat expectations.

"Defense spending is more about the threat and the state of your equipment than who is in the White House," said Safran.

Rich Ross of Evercore ISI, on Tuesday's "Trading Nation," said L-3 Communications will see continued upside.

"I think you still buy the stock here, and even on a pullback, you're a buyer on weakness," said Ross.

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more

Connect