Stocks in the aerospace and defense industry sit well positioned to benefit from favorable tailwinds in the space. The Boeing Company (BA), the world's largest commercial aircraft manufacturer, forecasts new plane sales to tally $6.35 trillion between 2018 and 2037 due to growth in emerging markets, such as China and India, along with robust demand from established European and North American markets.
Furthermore, rising geopolitical tensions and growing global defense budgets bode well for companies that manufacture and supply defense equipment. According to a report from the Aerospace Industries Association (AIA), the U.S. defense industry has seen exports grow 75% over the past decade. Looking forward, online statistics website Statista.com predicts global defense spending to increase from $1.78 trillion in 2018 to $2.02 trillion by 2022.
From a technical standpoint, price consolidation in many of the industry's leading names over the past month or so provides traders with an opportunity to position themselves for blastoff in the direction of the longer-term uptrend. The following three aerospace and defense stocks saw buying interest return on Thursday, April 11 – let's take a closer look at each issue and suggest a trading idea for each.
The Boeing Company (BA)
Boeing, with a market capitalization of $208.95 billion, manufactures, services and supports commercial jetliners, military aircraft and satellites. The Chicago-based company generates about 70% of sales from commercial aircraft, while 30% of sales come from its defense end markets. On Thursday, Boeing's CEO Dennis Muilenburg said the company has completed test flights with its software fix for the 737 Max and is also providing training to airline representatives using flight simulators to demonstrate how the modified flight control system will feel in the cockpit.
Jeff Guzzetti, former director of the Federal Aviation Administration's (FAA) accident investigation division, expects that Boeing's best-ever selling airplane is still several weeks from getting the aviation regulator's approval to fly again, per CNBC. As of April 12, 2019, Boeing stock is up 15.42% year to date (YTD) despite stalling 7.46% over the past month as investors contemplate what impact the software issue will have on the aircraft maker's earnings. The company pays a 2.10% dividend yield.
Boeing's share price has had a turbulent ride after closing down more than 5% on March 11 – the day after the Ethiopian Airlines 737 Max crash. However, buyers returned in Thursday's trading session to push the stock up 1.43% from a crucial support area at $365. Traders who go long here should look for an initial test of this month's high at $400, followed by a move up to the 52-week high at $446.01. Manage risk by placing a stop-loss order beneath the March low at $361.52.
Lockheed Martin Corporation (LMT)
Lockheed Martin Corporation (LMT) develops aerospace and defense technology products across four business operating segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space. The maker of F-16 and F-35 fighter jets landed nearly $1 billion in domestic deals in the first quarter and is well positioned to benefit from President Trump's 2020 budget proposal that puts the federal defense department's budget at $718 billion, up $33 billion from the previous fiscal year. Analysts place a $344.22 price target on Lockheed shares – a 12.64% premium to Thursday's closing price. Trading at $305.59 with a market cap of $86.42 billion and yielding 2.90%, the stock has gained 15.08% YTD as of April 12, 2019.
A symmetrical triangle has formed on Lockheed's chart over the past six weeks, with the price pushing slightly above the pattern's upper trendline in Thursday's session. Traders should look for a continuation move up to the early October swing high at the $345 level. The relative strength index (RSI) gives a reading below 60.0, indicating that the price has further room to run before consolidating. Consider placing a stop below the symmetrical triangle's lower trendline, as this would invalidate the setup.
Huntington Ingalls Industries, Inc. (HII)
Huntington Ingalls Industries, Inc. (HII) builds military ships and provides manufacturing and other services to the nuclear energy as well as oil and gas markets. In March, the ship maker announced that the United States Navy awarded it a $1.47 billion contract for the detail design and construction of the amphibious transport dock LPD 30. This follows a $15.2 billion deal finalized in January to build two nuclear-powered aircraft carriers.
The company reports its first quarter earnings before the opening bell on Thursday, May 2. From a valuation perspective, the stock trades at a discount to its peers, with a price-to-earnings ratio (P/E ratio) of 11.1 versus 19.2 for the industry average. Huntington Ingalls has a market value of $9.06 billion and is trading up 14.75% for the year as of April 12, 2019. Investors receive a modest 1.63% dividend.
Like Lockheed Martin, a symmetrical triangle also appears on the Huntington Ingalls chart. Market bulls stepped in yesterday to push the price above the pattern's upper trendline and 200-day simple moving average (SMA) – suggesting that the stock is ready to continue its uptrend that commenced in late December. Those who buy the breakout should think about setting a take-profit order near October's swing high at $257.36. Protect trading capital by positioning a stop below the 50-day SMA.