Paris attack may add firepower to U.S. defense stocks
By Tanya Agrawal (Reuters) - U.S. defense stocks, already on the upswing following the recent budget deal, are expected to rise further if the Paris attack gives a fillip to rising international sales. Lockheed Martin Corp , Raytheon Co , and Northrop Grumman Corp are among companies poised to benefit the most, analysts said. The stocks have risen 4-5.1 percent since Friday's carnage in Paris. "These stocks offer investors a positive exposure to geopolitical risks where the so-called threat environment keeps increasing and that's only going to benefit the defense contractors," said David Klink, senior equity analyst at Huntington National Bank. The Dow Jones U.S. Defense index <.DJUSDN> is up about 15 percent to Tuesday's close this year, far outperforming the broader Dow Jones Industrial average <.DJI>, which is down 1.9 percent and the S&P 500 index <.SPX> <.INX>, which is down 0.4 percent. Klink added that big defense stocks are also insulated from the slowing Chinese economy, a strengthening dollar and a cap on energy spending. Todd Harrison, budget analyst with the Center for Strategic and International Studies, said defense stocks benefited more from the recent budget agreement, which provided officials and companies certainty about government spending for the next two years. The 2016 presidential election could provide a further boost to defense spending with certain candidates promising to increase military budgets that has been under constraint. With France and Russia bombing Islamic State targets in Syria on Tuesday and British Prime Minister David Cameron edging closer to extending military action against the group, there could be lasting momentum for defense stocks if ground forces are deployed in Iraq and Syria. "We haven't crossed that bridge yet," said Byron Callan, analyst with Capital Alpha Securities. "But that would be significant." Callan said the overall outlook for defense stocks had improved due to the budget agreement, increased demand from the Middle East and the companies' focus on foreign arms sales. On Monday, the U.S. State Department approved the sale of $1.29 billion in smart bombs and other weapons to Saudi Arabia to help replenish supplies used in its battle against insurgents in Yemen and air strikes against Islamic State in Syria. Kuwait is also poised to buy $3 billion of fighter jets from Boeing Co . "Raytheon has been our number one holding in the defense sector, because they have more international sales," Mark Spellman, portfolio manager of the Alpine Rising Dividend Fund, said. "Upwards of 40 percent of what they do now is non-US business. And that's the highest percentage of any defense contractor," he said. (Reporting by Tanya Agrawal in Bengaluru; Additional reporting by Andrea Shalal; Editing by Sriraj Kalluvila)
