Historically, defense stocks haven’t necessarily related to the defense and aerospace industry. However, in today’s economic and geopolitical climate, it’s not a bad place to look.
The space has tended to consistently outperform the overall stock market, and even with a spike in recent weeks, shares of many big names haven’t reached an overvalued level right now. That points to further moves higher, even if geopolitical tensions calm down.
One such name in the space is General Dynamics (GD). The defense company trades at 20 times earnings.
While shares are up on the latest war fears, revenue and earnings are slightly down over the last year. That will likely reverse as longer-term defense spending across a number of nations rises, which should bode well for shareholders for the long haul.
The company even recently reported a massive contract deal for building the Virginia Class submarine, among many other existing and potential new projects.
Action to take: Investors may like shares at today’s prices. The company just raised its dividend yield, and today’s buyers can get about 2.1 percent, with a strong chance for more growth over time.
For traders, the August $250 calls should see mid-to-high double-digit returns in the coming months. The options last went for about $10.20.
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 of the companies mentioned in this article.