ITA - Defense Sector Provide the Best Defensive Stock Plays
Defensive investments in the form of Treasuries, REITs and precious metals have performed well and continued defensive investing is called for—the best defensive investment going forward may be defense-sector stocks, says Mike Larson.
You know the mantra I’ve been preaching since early 2018: Playing defense will pay off best. That’s because overhyped, over owned, high-flying, high-risk stocks aren’t leading the market anymore. Higher-yielding, anti-recession, dividend-focused, top-rated names are.
Investors focusing on Treasuries, REITs, precious metals and other defensive plays are outperforming typical buy and hold investors. There is another way generate defensive-focused profits, which I recently shared with my subscribers.
Buying DEFENSE is the Best Offense
I wish we lived in a completely peaceful, threat-free world. But as a market analyst, I have to base my recommendations on the world we have, not the one we may want. And the events of this past weekend prove we’re facing a very dangerous, unstable geopolitical environment.
As you probably know, Houthi rebels backed by Iran, other Iranian proxy forces, or Iran itself likely attacked key energy facilities in Saudi Arabia. The assailants used drones and missiles to strike the large Hijra Khurais oil field and the Abqaiq crude oil stabilization facility, the biggest such plant in the world.
Around 5.7 million barrels per day of production were knocked offline. That’s half of Saudi production. It could be anywhere from a few weeks to a few months before the Saudis can get production fully online again, according to various reports.
Oil traders reacted immediately to the news, sending benchmark WTI and Brent crude prices soaring by around 15% on Monday. That was the biggest one-day spike in more than three decades.
If there’s a saving grace here, it’s that the U.S. is a much larger energy producer now than it was years ago. That means oil and gas prices shouldn’t rise — or stay — as high as they did during past oil spikes like we saw in Gulf War I and the Arab Oil Embargo.
But that’s about the only good news here. The Saudis remain engaged in a low-grade war with the Houthis in Yemen. The Israelis are trading barbs with Iran and its regional proxies seemingly every week. And the possibility of some kind of U.S./Saudi retaliatory counterstrike remains a possibility.
It goes without saying that we’re clearly in a new Cold War-style standoff with China, too. Tensions have also been increasing between us and Russia in light of that country’s moves over the past few years in Eastern Europe.
The bottom-line impact of all of this? We’re likely to see an even-higher level of domestic defense spending. We can also expect increased purchases of both offensive and defensive systems by foreign allies.
U.S. defense contractors will be the primary beneficiaries. And just like demand for things like electricity and household products, that demand is not dependent on how weak or strong the economy is. That’s important in light of my expectation the economy faces a potential 2020 recession. It may be unfortunate, but when we decide to spend on arms, there is little worry of deficits.
So, what can you do as an investor to position yourself for these developments? Well, there are a handful of exchange traded funds (ETFs) that own a swath of defense sector stocks. They include the iShares U.S. Aerospace & Defense ETF (ITA) and the Invesco Aerospace & Defense ETF (PPA). Both are handily beating the market in 2019, with year-to-date gains of 33% and 40% respectively.
In addition to these ETFs, there are many individual defense-related stocks that should outperform the broad market in coming months, especially if my read of the geopolitical and market environment is correct.
To get a broader perspective on my successful, defensive investing strategies, join me at one or more of the investor events I’m participating in between now and yearend.
Join Mike and learn more about specific Defense stocks at the MoneyShow Philadelphia, Sept. 26 to Sept. 28 at the Philadelphia 201 Hotel.
Mike will also be speaking at the MoneyShow Dallas, Oct. 13 to Oct. 14 at the Hyatt Regency Dallas. General information, details about my schedule, and registration information can be found here.
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