One of the Best Stocks to Buy Now as Defense Spending Soars

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By , Contributing Writer, Money Morning

Global defense spending soared to $1.6 trillion last year, and that spending will only increase.  That’s why we’re bringing readers one of the best stocks to buy now to profit from this booming industry.

Before we get into one of the best stocks to buy now, here’s a closer look at the increase in global defense spending…

Global Defense Spending Soars

The world’s military spending last year increased for the first time in four years, according to a 2016 report from the Stockholm International Peace Research Institute (SIPRI).

Countries around the world spent more than $1.6 trillion on military programs and personnel last year. That was a 1% year-over-year increase, SIPRI data shows. That 1% gain may not appear like much, but it follows four years of declines.

The United States was the world’s largest military spender in 2015, spending $596 billion. That amounted to 36% of the world’s military spending. In a distant second place was China. The Asian nation shelled out $215 billion on defense last year, a 7.4% year-over-year increase.

Saudi Arabia leapfrogged Russia to become the third-largest defense spender in 2015. The oil kingdom spent $87.2 billion on defense in 2015. Russia’s military spending was estimated at $66.4 billion in 2015.

While the United States remained the largest global defense spender in 2015, the $569 billion spent on the military last year was well below the $711.3 billion spent in 2011. It was also 2.4% lower than the amount spent in 2014.

But that pattern is about to change dramatically…

“After years of ‘sequestration’ and penny-pinching, the U.S. Department of Defense is embarking on a huge rebuilding cycle,” explains Money MorningDirector of Tech & Venture Capital Michael A. Robinson. “Both presidential candidates are relatively hawkish, and they’ll need well-equipped armed forces to back up any campaign season positioning.”

And that will lead to years of increased military spending. It also means there is a major opportunity for investors to profit from one of the best stocks in the defense sector…

Defense Stocks Are Set to Soar Now

 One of the best stocks to buy now that Robinson recommends is “sitting right on top of the hottest segments among global defense priorities.”

“It’s the one weapons system that everyone needs, and it’s not any new-school ‘virtual’ or information weapon. It’s missile systems,” Robinson continued.

Missiles are an imperative part of any country’s military. Used offensively or defensively, missiles are the pillar of a credible military presence. The ability to manufacture and operate them as needed is another key benefit. They are also more affordable than other options.

“And importantly for investors, they’re a ‘turnkey’ moneymaker for defense firms, who get to sell not just missiles, but entire missile systems and training programs,” Robinson notes.

In the decade following Sept. 11, 2001, military spending increased 50%, adjusted for inflation.

And now, the U.S. military spends the same amount as the next seven countries combined. Think of it this way: The United States spends $2.77 for every dollar China spends.

Yet other countries around the world are aggressively looking to boost their missile programs. As a result, missile defense is experiencing the largest growth in an already high-growth segment.

“We’ve come a long way since the 1980s, when President Ronald Reagan funded the ‘Star Wars’ missile defense program that turned out to be an impractical hope,” Robinson said.

Since then, the missile defense space has undergone a dramatic transformation. And it has provided us with one of the best defense stocks to buy now…

One of the Best Defense Stocks to Buy Now for Market-Beating Gains

One of Robinson’s favorite stocks to buy now is Raytheon Co. (NYSE: RTN).

Founded in 1922, Raytheon specializes in defense, government, and cybersecurity. The Waltham, Mass.-headquartered company provides state-of-the-art electronics, mission systems integration, sensing, effects, and mission support services.

The company is a true global player. It sells products and services to customers in 80 nations, and its international presence and opportunities are growing.

“Raytheon is in the catbird seat in the defense sector – a supercycle of spending beginning at home and increasing orders from abroad, with a major product upgrade already deployed selectively,” Robinson said.

Just take a look at some of the contracts Raytheon has signed in recent months.

  • In August, Raytheon Missile Systems was awarded a $129 million contract from the U.S. Army for its wireless guided missiles.
  • RTN also inked a $288 million contract with the U.S. Navy last month for a weapons and operation system upgrade.
  • The U.S. Missile Defense Agency exercised a $523 million contract option in August with Raytheon to produce, test, and deliver 47 Standard Missile-3 Block IB interceptors.
  • In early September, RTN was awarded two Navy contracts worth roughly $355 million.

It’s easy to see that missile defense is RTN’s fastest-growing segment among its product lines. Yet everything in the company’s diverse portfolio is enjoying solid growth.

At $139.61, RTN shares are up 12.18% year to date and 34.71% over the last year. Robinson says shares could climb at least another 11% before the end of the year, making it one of the best stocks to buy now.