Defense Stocks In 2017 With A Trump Presidency

With the Trump administration taking charge this month, there is a high degree of uncertainty regarding “where defense will head,” Bernstein analysts said in a report. They added that the defense budget would likely be increased and that nominal growth should be “no higher than mid-single digit.”

Market Overreacted

The analysts mentioned that the market has overreacted both positively and negatively to the statements made by President-elect Donald Trump on defense. While Trump indicated an expansion in defense spending with aggressive end-strength increases, he also suggested that his focus would be on keeping costs down, particularly with Mick Mulvaney as Office of Management and Budget director.

Possible Outcomes

“Despite Trump's unique approach, no individual is bigger than the machine of the US government, characterized by the Iron Triangle of DoD, Congress, and the defense industry,” the report noted, while explaining that the relationship with Department of Defense, Congress and the industry would bind possible outcomes.

While the end-strength increases suggested by Trump during the campaign are unlikely to happen, the budget is likely be increased. “Increases planned in the current budget are already insufficient to fund planned programs and there is likely to be more pressure from Personnel and O&M costs,” the analysts pointed out. They added, “Even in the most hawkish independent budget scenarios, nominal growth is no higher than mid-single digit.”

Stocks To Watch

• Boeing Co BA.
• Lockheed Martin Corporation LMT.
• Raytheon Company RTN.