It was recently announced that President Obama had secured enough votes to veto any potential opposition to the Iran Nuclear Deal. Further, Secretary of State John Kerry sent a letter to Congress stating that Israel and America’s Gulf allies would be “taken care of.” According to the letter, this would be accomplished with “increased US military intelligence, and security cooperation.”
As part of this cooperation, Israel will be the first to receive the American made next-generation F35 fighter aircraft in 2016. Also, $3 billion will be used to enhance and secure Israel’s missile defense programs, including the Iron Dome, David’s Sling, and Arrow-3 systems. Further, the letter states, “the US administration recently offered Israel a $1.89 billion munitions resupply package that will replenish Israel’s inventories and will ensure its long-term continued access to sophisticated, state of the art precision guided munitions.” Lastly, it was revealed that the US will assist Israel with “tunnel detection and mapping technologies” that terrorists use to attack the civilians.
It is not just Israel that will be receiving assistance, the Gulf States, including United Arab Emirates (UAE), and Saudi Arabia will “receive arms shipments and new security deals.” The goal of the administration is to improve “ballistic missile capabilities in the region”, according to the letter. These military and cooperation assistance measures are designed to deter any Iranian “aggression against any GCC member state.”
Who makes these defense items?
So with all this promised assistance, the question to ask is, who makes these defense items? Zacks has identified three companies that will directly benefit from this policy, and one potential long-term sleeper that could see some impressive growth a bit down the road.
Stocks To Consider
Lockheed Martin Corp (LMT- Analyst Report) which carries a Zacks Rank #2 (Buy) a security and aerospace company, engages in the research, design, development, manufacture, integration, and sustainability of technology systems, products, and services. It also provides management, engineering, technical, scientific, logistics, and information services. Its Aeronautics segment offers combat and air mobility aircraft, unmanned air vehicles, and related technologies. The company’s Information Systems & Global Solutions segment provides technology systems and expertise, integrated information technology solutions, and management services; and supports customers in data analytics, cyber security, air traffic management, and energy demand management.
The company recently announced a $1.5 billion U.S. missile defense contract which includes deliveries of the PAC-3 and PAC-3 MSE interceptors, associated equipment and spares for GCC members like Saudi Arabia, Qatar, and United Arab Emirates (UAE). According to Lockheed’s VP Scott Arnold, “The PAC-3 and the PAC-3 MSE interceptors are the most advanced, capable and reliable terminal air defense missiles in the world.” Further, Lockheed Martin manufactures the F-35 Lightning aircraft. Given that Lockheed is already in the Gulf States, they are uniquely positioned to take advantage of Secretary Kerry’s promises to the GCC members.
The table below shows Lockheed vs. the S&P 500 (SPY) over the past 3 months. As you can see, this defense stock has outperformed the index, and has actually risen during the recent negative downturn.
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