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.


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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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