With so much focus on tech stocks over the past year, other sectors of the market look like a relative bargain. Many companies have been improving their earnings and revenues. But being in an out-of-favor sector means shares may become a better value.
One such sector is the defense sector. It tends to perform well over time. And with rising global tensions, it could see further solid returns this year.
In the defense space, L3Harris (LHX) looks like a reasonable buy. Shares trade at 16 times forward earnings, a discount to peers.
But the company is also getting some activist interest, which could mean that L3Harris could sell off poorly-performing divisions, or look for other ways to improve returns. Currently, L3Harris sports a low 6.3 percent profit margin.
Action to take: Investors may like shares here, given the company’s valuation and upside potential in a restructuring. At current prices, shares also pay a 2.2 percent yield.
For traders, shares are in an uptrend. The May $220 calls, last going for about $5.40, could see some further upside from here in the months ahead.
Traders can likely nab mid-double-digit returns, but may want to exit the trade quickly if there’s a one-day pop higher in shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.