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Defense stocks surge on North Korea tensions, United Technologies mega-deal

  • Shares of Raytheon rose 1 percent, while Northrop Grumman and Lockheed Martin also climbed.
  • North Korea successfully tested a hydrogen bomb that can be mounted onto an intercontinental ballistic missile on Sunday, marking its sixth — and biggest — test since 2006.
  • Defense stocks also received a boost from the Rockwell Collins-United Technologies merger.
Military personnel walk past the Raytheon Missile stand.
Carl De Souza | AFP | Getty Images
Military personnel walk past the Raytheon Missile stand.

Defense stocks rose broadly Tuesday as tension between North Korea and the West mounted. Investors also loaded up on these names after a blockbuster merger deal.

Shares of Raytheon rose 0.6 percent to a new all-time high, while Lockheed Martin also advanced even as the broader market declined on the increased geopolitical tensions.

North Korea successfully tested a hydrogen bomb that can be mounted onto an intercontinental ballistic missile on Sunday, marking its sixth — and biggest — test since 2006.

The test was condemned by the international community and also sent jitters through global financial markets.

Defense stocks also received a boost from the Rockwell Collins-United Technologies deal. On Monday, the two companies said Rockwell would be bought by United Technologies for $30 billion, including debt.

"It is possible that the acquisition of COL is the first step in separating UTX into two entities: a Commercial Operation and a Defense and Aerospace Group," Howard Rubel, equity analyst at Jefferies, said in a note last week as speculation about a deal being struck by the two companies increased.

"There may be a bit of value that could be unlocked under that scenario, but the time to close the deal and the disruption associated with it detracts from long-term value-creation driven by improving existing operations," Rubel said.

Rockwell Collins shares rose about 1 percent. United Technologies' stock fell more than 4 percent, and was one of the biggest drags on the Dow Jones industrial average on Tuesday.

Defense shares have been among the best-performing stocks under President Donald Trump. Lockheed and Raytheon shares are up more than 20 percent this year, whole Northrop's stock has risen more than 15 percent.