3 Aerospace & Defense Stocks to Fortify Your Portfolio

In this article, we discuss 3 aerospace & defense stocks to fortify your portfolio.

By Sean Sechler

Depositphotos.com contributor/Depositphotos.com - MarketBeat

This story originally appeared on MarketBeat

It's always important for investors to consider who is paying for a company's products or services before adding its stock into their long-term accounts. After all, a company can have the most innovative and cutting-edge business in the world, but if its customers aren't able to pay for its products, it will never achieve success. This is a huge reason why aerospace & defense companies are so attractive, as their largest customer has infinitely deep pockets – the U.S. Government.

These are businesses involved in making all different types of aircraft along with equipment and machinery used for national defense. The recent turmoil in Afghanistan offered investors a quick reminder of just how important these companies are in the overall scheme of national security, and with the House of Representatives passing a $768 billion defense policy bill back in September, it's clear that there will be plenty of contracts awarded to the top names in the sector going forward. Many of these stocks have been rallying during the recent market volatility, which means that they could really be ready to take off if the market finds its footing.

That's why we've put together the following list of 3 aerospace & defense stocks to fortify your portfolio. Let's take a further look below.

Northrop Grumman (NYSE:NOC)

This is the second-largest Defense contractor in the United States and certainly one of the highest-quality stocks in the aerospace and defense industry, which is why it should be one of the first names to look at for this type of exposure. Northrop Grumman is a solid pick thanks to the company's diversity in its business segments, which include aeronautics systems, defense systems, mission systems, and space systems. All of the company's different operating segments should see strong global demand in the coming years, and investors can be sure that Northrop will win some big deals from the Pentagon thanks to a beefed-up defense budget.

Additional reasons to consider adding shares of this iconic defense company include Northrop's Q2 EPS increase of 7% year-over-year and recent dividend bump of 8%. Northrop is also known to be a more advanced-technology defense contractor, which is another unique competitive advantage to deliver. This has helped the company win deals like the Ground Based Strategic Deterrent program and the B-21 bomber program, which both should provide nice growth opportunities for the company going forward.

Raytheon Technologies (NYSE:RTX)

Some of these companies offer exposure to the commercial aerospace industry, which could see a strong rebound as the impacts of the pandemic start to diminish. That's the case with Raytheon Technologies, which includes aerostructures, avionics, mechanical systems, and interiors specialist Collins Aerospace Systems and Pratt & Whitney, a global supplier of aircraft engines. While this part of Raytheon's business is dependent on commercial air travel and could present some risk if the industry rebounds slower than anticipated, the company also generates substantial revenue from its defense and intelligence business to help put investors at ease.

The company just inked a deal worth up to $1.3 billion with the U.S. Navy to deliver ship-defense missiles called the Evolved Seasparrow Missile (ESSM) Block 2 through March 2025. This is a reminder to investors about just how lucrative some of these defense contracts can be. Finally, the fact that Raytheon offers investors a 2.33% dividend yield and is close to breaking out to new all-time highs makes it one of the premier aerospace and defense stocks to add at this time.

General Dynamics (NYSE:GD)

Again, it typically pays to focus on quality names in a sector and General Dynamics certainly fits the bill. The company provides a large range of aerospace & defense products including Gulfstream jets, nuclear submarines, Abrams tanks, and IT solutions. If you think that geopolitical tensions are on the rise, it might be a good idea to start building a position in a company like General Dynamics, as it generates roughly 68% of its total revenue from the U.S. government.

You might be familiar with the company's Gulfstream business jet line, which is the world's largest producer of corporate and private jet aircraft. This part of the company has been hit hard by the pandemic but should rebound sharply in the coming months as vaccines make business travelers more comfortable with flying. There's also a lot for investors to like about this company's marine segment, which includes a contract to build Columbia-class submarines with planned procurement through the year 2042.

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