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Defense stocks suffered large selloffs in February and March alongside the broader market, implying defense earnings will experience a similar downturn and uncertainty as the broader economy during the coronavirus recession and ensuing recovery.
We see limited risk to defense earnings, however, as the industry has been deemed critical infrastructure while its key driver, defense spending, has shown little or no historical correlation to recessions or rising Federal deficits.
Given the proven ability of defense earnings to grow through recessions, as well as through occasional unrelated periods of defense spending cuts, we see recent selloffs in GD, HII, LHX, LMT, and NOC as attractive investment opportunities to outperform the S&P 500.
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