The socio-political stability in the entire Middle East has been disrupted following the turbulence caused by Taliban’s takeover of Kabul, the capital city of Afghanistan, last week. Although the sudden news of Taliban’s hostile invasion initially sent shockwaves across the U.S. stock market, not all sectors have a reason to worry.
Indeed, an act of war or the mere possibility of a combat boosts demand for weapons manufacturers and varied defense products. Since the United States has been a long-time patronizer of the erstwhile Afghan government, the current hostile scenario in the country has brought prominent U.S. defense contractors in the spotlight.
U.S.-Afghan Military Ties
The U.S. military set its foot firmly in Afghanistan shortly after the 9/11 attacks in 2001. Since then, the United States has been rendering military support to Afghanistan in combat operations against Taliban militants. As reported by the U.S. Department of State in January 2021, there have been more than 2,400 U.S. military deaths in Afghanistan since 2001, and over 20,000 U.S. service members have been wounded in action.
The United States is part of a coalition of more than 100 countries and organizations that provide both security and civilian assistance to Afghanistan. The international community made almost $5 billion available for the Afghan National Defense and Security Forces (ANDSF) in 2019, with the United States providing the greatest share. This clearly shows the immense involvement of America in maintaining Afghanistan’s military stability.
The Current Scenario
As far as the fresh turmoil in Kabul is concerned, the U.S. military is planning to leave Afghanistan entirely by Aug 31, as per the peace agreement signed between former president Donald Trump and Taliban leaders. The peace agreement was later backed by U.S President Biden. So far, U.S. soldiers deployed in Kabul have been working tirelessly to not only evacuate people but also some important military equipment from the country.
The aircraft used in these evacuations are Boeing’s BA C-17 Globemaster III and Lockheed’s LMT C-130 Hercules.
Stocks to Buy
With U.S. troops set to leave Afghanistan, President Biden is facing some criticism for this withdrawal. Only time will tell if this leads to a reversal of the decision. On the other hand, in the absence of U.S. troops and their support, Afghanistan will totally collapse under Taliban and there may be warfare in the country. So, U.S. forces might again consider engaging in a war against Taliban.
In this scenario, investors should consider adding the following U.S. defense stocks to their portfolios. These companies have already established ties with ANDSF and thus will be in a position to gain if there is further unrest in the nation.
Textron’s TXT COMMANDO vehicles have been supporting the Afghan National Army Special Operations Command (ANASOC) for quite a few years. Since 2012, Textron has delivered more than 600 vehicles to support the ANASOC, all of which were actively engaged in security operations around the country, as of 2019. The company currently sports a Zacks Rank #1 (Strong Buy) and boasts a long-term earnings growth rate of 28.3%.
Embraer’s ERJ A-29 Super Tucano aircraft serves the Afghanistan army. In 2020, the United States delivered four A-29 Super Tucano aircraft to the Afghan Air Force as part of the Nato-led Resolute Support Mission. The company currently carries a Zacks Rank #2 (Buy) and has a long-term earnings growth rate of 17%. You can see the complete list of today’s Zacks #1 Rank stocks here.
General Dynamics GD provides information technology (IT) management services in Afghanistan to support U.S. Army Corps of Engineers (USACE) Middle East District reconstruction and infrastructure-development programs. The company has also supplied various quantities of different rockets, warheads, motors and associated components in the past, to boost the capabilities of ANDSF. The company currently carries a Zacks Rank #2 and has a long-term earnings growth rate of 8.6%.