Mad Money

Cramer: If Congress ups defense spending, these 3 stocks are primed for profit

Key Points
  • "Mad Money" host Jim Cramer recommends Lockheed Martin, Raytheon and Harris as stocks to buy for their strong business prospects and favorable economic conditions.
  • With Congress close to a budget deal that would boost defense spending, Cramer says these stocks are set to benefit even more.
If Congress ups spending, these 3 defense stocks are primed for profit

After several wild trading sessions, CNBC's Jim Cramer knows investors might want to reevaluate their portfolios and buy stocks that are more resilient to major market swings.

"Which brings me to one of my absolute favorite [secular themes]: defense," the "Mad Money" host said on Wednesday. "When the defense contractors get slammed by a big sell-off, they should be right at the top, No. 1, of your shopping list because the things people are worried about — like the Fed possibly getting too aggressive — matter a lot less to the defense industry than, say, to the industrials."

Cramer has long recommended the defense stocks, many of which are up between 40 and 60 percent since Donald Trump's election.

The recent sell-off managed to drag the otherwise soaring cohort down to more attractive prices, Cramer said. While the stocks have since rebounded, most are still cheaper than they were before the pullback.

Wednesday's news of the Senate reaching a budget deal, which includes higher spending on defense, added another potential leg to the defense rally, the "Mad Money" host said.

"We know the House is already on board, so it seems almost certain that the defense budget is going to increase by about $80 billion as part of a broader deal to avoid a government shutdown," Cramer said. "When Republicans control the White House and the legislature, Washington becomes a fabulous feeding trough for the defense contractors because this is the one thing that the GOP really likes spending money on."

On a darker note, Cramer reminded viewers that the world is still a dangerous place. The United States is still militarily involved in Afghanistan, and with North Korea bolstering its nuclear missile program, the defense industry is not exactly short of business.

Moreover, as president, Trump has been something of a defense salesman to U.S. allies, making arms deals with Saudi Arabia, Poland, Romania and Norway.

Of all the defense contractors that benefit from this convergence of catalysts, Cramer's favorites were Lockheed Martin, Raytheon and Harris Corporation.

Lockheed Martin and Raytheon specialize in aircraft and missile manufacturing, while Harris focuses on electronics and communications like tactical radio.

"In short, we like the arms dealers that specialize in warfare that comes from afar, which seems to be the new way of doing things here in the U.S.," the "Mad Money" host said. "Putting boots on the ground in someone else's war tends to be unpopular, but an air campaign somehow tends to face very little resistance domestically."

Cramer liked Lockheed Martin, the manufacturer of the F-35 Joint Strike Fighter jet, for its F-35 sales growth, consistent stock buyback program, brimming demand and 2015 acquisition of helicopter and jet maker Sikorsky Aircraft, which is just starting to pay off.

Raytheon, which Cramer called the "scientist of the defense space," makes high-tech sensors, missiles and other airborne systems, with a timely focus on counter-terrorism.

"When you see big missile defense system sales or hear about some ally buying Patriot missiles, which they do constantly, ... that's Raytheon," Cramer said, adding that he liked the company so much that he used Monday's sell-off to buy shares of it for his charitable trust.

Harris may not be as commonplace a name as the others, but Cramer said the battlefield technology play was not to be discounted, noting that Harris' electronics are an integral part of Lockheed Martin's F-35 jets and operations at the Pentagon.

"But you know the main reason I like Lockheed, Raytheon and Harris? It's because we know for a fact that all three companies are in fabulous shape. In fact, they were doing well even before Congress agreed to boost the defense budget. We know this because all three companies just reported terrific results," Cramer said.

Both Lockheed Martin and Harris handily beat the earnings estimates for their latest quarters, and despite some one-time tax-related charges in Raytheon's most recent report, the company had more business than it could handle, which sent the stock surging.

"Here's the bottom line: regardless of the market's newfound worries, the defense sector is booming here," Cramer concluded. "We know Lockheed, Raytheon and Harris are in great shape because they just told us so. They all had big moves up today, so don't chase them, but absolutely put them on your shopping list so you can pounce the next time this incredibly volatile market takes down the whole group."

WATCH: Cramer's bull case for the defense stocks

Cramer: If Congress ups defense spending, these 3 stocks are primed for profit

Disclosure: Cramer's charitable trust owns shares of Raytheon.

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