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.

Northrop Grumman NOC may have the biggest stake in this fight, as one of its subsidiaries produces the craft. In addition, General Electric GE makes the A-10's TF35 turbofan engine.

Lockheed Martin's 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. But 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 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.

See also: Can Drone-Maker AeroVironment Compete In A Civilian Environment?

Northrop Grumman

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 consensus analysts' recommendation is to hold shares. The share price has faced resistance around $122 since February, and shares closed Monday at $122.34.

Lockheed Martin

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. But for at least three months the consensus 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

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 a 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

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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