The Aerospace & Defense Sector Is Hotter Than Ever (ITA)

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August 16, 2018 6:23am BATS:ITA

From Zacks: President Trump has finally signed the $717-billion 2019 defense spending bill into law — the largest allotted to U.S. defense.


Pentagon’s base budget holds $616.9 billion, overseas contingency operations have been authorized $69 billion and nuclear weapons programs hold $21.9 billion under the Energy Department. Also, compensations for troops have been raised by 2.6%, marking the biggest increase in almost a decade.

The NDAA permits $7.6 billion for 77 of Lockheed Martin’s F-35 Joint Strike Fighters. The fifth-generation stealth jet is Pentagon’s most expensive weapon system, per an article published on CNBC. The law also allows $85 million for UH-60M Black Hawk utility helicopters, which are made by Sikorsky, a unit of Lockheed Martin, per CNBC.

There was an approval of $1.56 billion for three littoral combat ships despite the Navy’s request for only one. This marked the President’s interest in spending generously on defense. Overall, 13 new warships were permitted for the approaching fiscal. The budget also enhanced the “size of the Navy and the ranks of the military by 15,600 active-duty troops.”

National Defense Authorization Act (NDAA) also postpones the delivery of stealth fighter aircraft to Turkey (due to the country’s interest in buying a Russian missile defense system) and dulls Chinese investments by consolidating the Committee on Foreign Investment in the United States (read: Profit From Turkish Turmoil With These Global Inverse ETFs).

Defense Sector’s

Aerospace and defense is a top-ranked Zacks sector (top 6%) at the time of writing. In the second quarter, the space saw 24.8% earnings growth with a beat ratio of 81.8% while revenues increased 7.7% with an 81.8% beat ratio, per Earnings Trends issued on Aug 9. For the third quarter, the sector is poised to log a decent 19.5% earnings growth on 8.1% higher revenues (read: Aerospace and Defense ETFs Rise on Strong Q2 Earnings).

Against this backdrop, a few stocks and ETFs from the aerospace and defense space look interesting.

Stock Picks 

Aerojet Rocketdyne Holdings Inc. (AJRD – Free Report)

The company focuses on developing military, civil and commercial systems and components for the aerospace and defense market.

Lockheed Martin Corporation (LMT – Free Report)

It is a global security and aerospace company, which is engaged in the manufacture, integration and sustainment of advanced technology systems, products and services.

Teledyne Technologies Incorporated (TDY – Free Report)

The company provides enabling technologies for industrial growth markets.

ETF Picks

iShares U.S. Aerospace & Defense ETF (ITA – Free Report)

This fund provides exposure to U.S. companies that manufacture commercial and military aircraft and other defense by tracking the Dow Jones U.S. Select Aerospace & Defense Index. Boeing, United Technologies and Lockheed Martin are the top three holdings of the fund. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

SPDR S&P Aerospace & Defense ETF (XAR – Free Report)

The fund seeks to track a modified equal-weighted index, which provides the potential for unconcentrated industry exposure across large, mid and small-cap stocks. Arconic, Mercury Systems and Aerojet Rocketdyne Holdings take top three spots of the fund. The fund currently has a Zacks ETF Rank of 2 with a Medium risk outlook.

Invesco Aerospace & Defense ETF (PPA – Free Report)

The Invesco Aerospace & Defense ETF is based on the SPADE? Defense Index. United Technologies, Honeywell International and Lockheed Martin get the top three spots in the fund. The fund currently has a Zacks ETF Rank #2 with a Medium risk outlook.


The iShares Dow Jones US Aerospace & Def.ETF (ITA) was unchanged in premarket trading Thursday. Year-to-date, ITA has gained 7.43%, versus a 6.01% rise in the benchmark S&P 500 index during the same period.

ITA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #2 of 34 ETFs in the Industrials Equities ETFs category.


This article is brought to you courtesy of Zacks Research.


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