Middle East conflict is pushing the stocks of defense contractors like
Lockheed Martin
and Northrop Grumman higher. Investors have to think quickly about potential winners and losers—if the Israel-Hamas war escalates.
Saturday, Hamas militants launched an assault by land, sea, and air, against Israel and its forces crossed the Gaza border into Israel. Gaza borders Israel and Egypt, and is controlled by Palestinians. Israel declared war on Hamas, and launched retaliatory strikes.
Shares of defense contractors were surging. Lockheed Martin (ticker: LMT) and
Northrop Grumman
shares (NOC) were up about 6% and 9%, respectively, in early trading.
General Dynamics
(GD),
L3Harris Technologies
(LHX), and
Huntington Ingalls Industries
shares (HII) were up about 7%, 6%, and 7%, respectively.
RTX
shares (RTX) were up 3%.
Boeing
shares (BA), however, were flat.
Smaller defense stocks were up as well.
Kratos Defense and Security Solutions
(KTOS) and
BWX Technologies
shares (BWXT) were up about 6% and 2%, respectively.
Mercury Systems
(MRCY) shares were up about 4%.
The
S&P 500
and
Dow Jones Industrial Average
futures were down 0.4% and 0.3%, respectively.
The moves have lifted the collective market capitalization of those stocks by about $21 to about $511 billion
Investors are looking for some guidance, but few on Wall Street have weighed in on the conflict. How long it will last, and if it will expand are key questions. A shorter, contained conflict will likely see defense shares give back gains.
Outside of the conflict, investors are weighing how a potential U.S. government shutdown can impact the defense sector. Historically, shutdowns haven’t mattered much to the stocks.
Defense shares haven’t been strong performers recently. Coming into Monday’s trading, of the large-cap stocks only Boeing shares were up over the past 12 months. Boeing, of course, is more of a commercial aerospace company in the minds of investors. The average move for the rest was down about 14% over the past year, while the S&P 500 was up about 19%.
The drops have left defense stocks, excluding Boeing’s, trading for about 14.5 times estimated 2024 earnings, down from about 17 times, a historical average in recent years. Boeing earnings are still depressed following Covid and 737 MAX issues, and the stock trades for about 38 times estimated 2024 earnings.
Write to Al Root at [email protected]
Read the full article here