Iran executed a ballistic missile attack targeting two Iraqi airbases that were hosting U.S. and allied troops late in the night on Jan 7. More than dozen missiles were launched in retaliation to the U.S. airstrike on Baghdad airport that killed Iran’s top commander General Qasem Soleimani.
As expected, defense stocks jumped once the share market opened on Jan 8, as this missile attack once again intensified the long-standing tiff between the United States and Iran.
A Longstanding Conflict
Cross-border tension between America and Iran started long back in 1953, when reportedly, British and U.S. intelligence agencies orchestrated a coup to oust Iran's democratically elected prime minister, Mohammad Mossadeq (as per a BBC report). The tiff mitigated, to some extent, at least, under President Barack Obama, when in 2015 Iran signed the much awaited nuclear accord, promising to limit its nuclear activities.
However, the relation between these two nations soured again when in May 2018, under President Trump, the United States withdrew from the nuclear deal. Moreover, economic sanctions were imposed on Iran that ultimately led to a recession. The situation further worsened in May 2019, when the United States tightened the sanctions targeting Iran's oil exports.
The recent killing of General Soleimani brought the government at its wits end and the nation’s commanders vowed to take revenge in the form of direct military action against the United States. The latest missile strike on an Iraq base seems to be in line with thepromise made by Iran’s leaders.
United States’ Stance
Surprisingly, President Trump appears to have taken a defensive approach while addressing the Iran missile attack issue. Per major reports, Trump did not mention any military retaliatory action against Iran, following the latest strikes, stating that Iran to him appears to have stepped down from executing any further military action against the United States.
However, Trump announced that his administration would once again slap Iran with more sanctions and demanded that U.S. allies leave the nuclear deal so a new pact can be negotiated. Now this will be a more strategic way to penalize Iran, which might once again enrage its leaders, leading to aggressive military action. In the event of such escalated action, the United States might strike back.
Defense Stocks to Buy
In response to Iran’s threat of revenge following Soleiman’s death, the United States sent 3,000 more troops to the Middle East and advised its citizens to leave Iraq. Per the latest reports, Trump has not mentioned whether these troops will be withdrawn or not.
So the possibility of a war between the United States and Iran still exists. Such a scenario will boost U.S. defense stocks, missile manufacturing stocks in particular, as missiles have always played a vital role in cross-border tiffs.
Considering this, we have hand-picked three U.S. stocks that are either missile makers or offer significant missile defense systems. These stocks carry a Zacks Rank #2 (Buy) and thus should find a place in an investor’s portfolio. They also boast strong fundamentals, which make them even more attractive.
Lockheed Martin LMT manufactures prominent missiles like Patriot Advanced Capability-3 (PAC-3), Terminal High Altitude Area Defense (THAAD), Hellfire, Joint Air-to-Surface Standoff Missile (JASSM), Javelin tactical missile and a few more. The company surpassed the Zacks Consensus Estimate in four consecutive quarters, delivering average surprise of 14.41%. Its long-term earnings growth rate is 7.1%
Northrop Grumman’s NOC key programs include Advanced Anti-Radiation Guided Missile as well as the Integrated Air and Missile Defense Battle Command System (IBCS) and a few more. The company surpassed the Zacks Consensus Estimate in four consecutive quarters, coming up with average surprise of 11.48%. Its long-term earnings growth rate stands at 13.1%.
Raytheon Company RTN is the manufacturer of Patriot air and missile defense systems, Standard Missile -3, Advanced Medium-Range Air-to-Air Missile (AMRAAM), AIM-9X Sidewinder short-range air-to-air missile and a few more. The company surpassed the Zacks Consensus Estimate in four consecutive quarters, with average surprise of 8.6%. Its long-term earnings growth rate is 10.7%.