Here’s Why Defense Stocks are Getting Drop Kicked Now
The US is in three wars (Iraq, Afghanistan, and Libya), but Defense sector stocks (NYSE:PPA) are quickly losing favor. In addition to President Obama’s rhetoric about budget cuts, Goldman Sachs (NYSE:GS) is recommending investors avoid the sector as funding may decrease in the near to mid term:
“Defense stocks have outperformed the S&P by 3% year to date due to a GFY12 (government fiscal year 2012) budget that some viewed as avoiding the worst case scenario. But in our view, the budget data has already deteriorated significantly since that event just two months ago, and will continue to get worse from here. We see the upcoming 1Q11 earnings season (given the potential for downward revisions to full-year 2011 guidance) and then reductions to the FY12 plan (including a potential resubmission of the FY12 request) and to the FYDP to act as negative catalysts for the group.”
Stocks particularly getting bombed include Lockheed Martin Corporation (NYSE:LMT), Raytheon Company (NYSE:RTN), Northrop Grumman Corporation (NYSE:NOC), L-3 Communications Holdings, Inc. (NYSE:LLL), General Dynamics Corporation (NYSE:GD), and The Boeing Company (NYSE:BA). But don’t underestimate the power of the Aerospace and Defense lobbyists to loosen the spigot sooner than expected.