Volatility in financial markets has become a fact of life all over the world and has sent investors questioning where the opportunities are in the midst of headwinds such as declining commodity prices and fears over an economic slowdown in China.
Our GovCon Index of 30 publicly-traded government contractors has reflected the strong winds of markets in January to the tune of a 9-percent decline for the month.
Nonetheless, one analyst at Credit Suisse has put forth an idea that the best defense against Wall Street’s wild swings may very well be government contracting stocks and defense companies specifically.
According to Barron’s, Credit Suisse’s Robert Spingarn views the current landscape as a “risk-off” market where investors are looking to the safest bets they can find returns.
“Defense lacks significant global economic or currency exposure, and so performance should be more predictable and the resulting cash returns more reliable, ” Spingarn said.
“Further, with the DoD budget inflecting, most companies in the sector should begin to deliver organic growth for the first time in several years.”
Spingarn singled out General Dynamics, L-3 Communications and Raytheon as stocks his team expects to exceed the market return and said investors should hold onto their shares in Huntington Ingalls, Lockheed Martin and Northrop Grumman.
We will gain a clearer picture of the defense and GovCon industry’s health next week as the U.S.’ five largest government contractors report financial results for both the full 2015 calendar year and the fourth quarter.
Lockheed will state its earnings Tuesday; Boeing and General Dynamics will detail their results Wednesday; and Northrop and Raytheon will report Thursday.
THE WEEK’S TOP GOVCON STORIES