4 Stocks To Watch In Light Of Tuesday's Defense Hearings
The Senate Appropriations Defense subcommittee is set to mark up its draft of the fiscal 2015 Pentagon spending bill on Tuesday.
The fate of the A-10 "Warthog" aircraft is one of the main issues at hand. The U.S. Air Force has wanted to be rid of the A-10 for some time now, but panel chairman Dick Durbin (D-Ill.) has hinted that lawmakers may reject the Air Force's latest proposal to retire the fleet.
Lockheed Martin's (NYSE: LMT) F-35A has been proposed as an alternative to the A-10, and it fared well in the House version of the defense spending bill. Critics have called the F-35A a "step backwards" from the A-10, and problems with its Pratt & Whitney engine have been a concern.
Also at issue may be the U.S. Army's contentious Armored Multi-Purpose Vehicle competition, which resulted in a squabble between contractors General Dynamics (NYSE: GD) and BAE Systems. General Dynamics has lobbied Congress to force the Army to reopen the bidding or to purchase Stryker vehicles from General Dynamics instead.
Northrop Grumman has a market cap of more than $26 billion and a dividend yield of 2.3 percent. Its price-to-earnings (P/E) ratio is less than the industry average, and the long-term EPS growth forecast is a little more than seven percent. The operating margin is greater than the industry average, and the return on equity is more than 20 percent. The analysts' consensus recommendation is to hold shares. The share price has faced resistance around $122 since February, and shares closed Monday at $122.34.
Lockheed Martin's market cap is around $51 billion, and its dividend yield is 3.2 percent. The P/E ratio is less than the industry average, and the long-term EPS growth forecast is almost nine percent. The return on equity is very healthy at more than 107 percent. For at least three months, however, the analysts' recommendation has been to hold shares. The share price has pulled back around four percent from a multiyear back in June and landed on $161.81 at Monday's close.
General Dynamics has a market cap near $40 billion and a dividend yield near 2.1 percent. While its P/E ratio also is less than the industry average, the long-term EPS growth forecast is less than eight percent. It has a return on equity around 18 percent. Fourteen out of 22 analysts polled by Thomson First Call recommend buying shares. The stock has retreated about three percent from a multiyear in early June. Shares ended Monday at $116.68.
General Electric, though not generally considered a defense contractor, has a market cap of almost $22 billion and a dividend yield of 3.3 percent. Its long-term EPS growth forecast is about nine percent. The operating margin is greater than the industry average, but the return on equity is less than 10 percent. Half of the surveyed analysts recommend buying shares. Shares have traded mostly between $26 and $27 since April, and closed Monday at $26.66.
At the time of this writing, the author had no position in the mentioned equities.
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