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It’s a new month, a new week, and the only thing anybody’s talking about is tomorrow.
The midterms are finally here, and a lot of people will walk into the voting booth with the war with Iran on their minds. It’s near the top of what voters say matters most this year, right behind the economy and healthcare.
That puts defense right in the middle of this election. Whoever ends up running Congress inherits a Pentagon budget that still hasn’t passed, and it’s a big one, $1.5 trillion.
So, I asked the team for one defense name they like heading into the vote. Two went with the biggest names in the business, one picked a company that stops drones, and one picked the whole sector in a single ticker.
CJ JOHNSON | RTX (RTX)
“I like RTX as one of the strongest opportunities in the defense sector,” CJ told me.
RTX (RTX) is the company most people still call Raytheon. It makes the Patriot missile system, and it owns jet engine maker Pratt & Whitney.
CJ’s case starts with that budget fight. “That spending isn’t going away, it’s simply delayed, and RTX stands to benefit from the multiyear cycle of replenishing depleted weapons inventories,” he said.
In other words, the military has to restock what it’s used up, and that means years of orders. CJ calls that the first wave. “The second is the modernization of warfare through autonomous systems, advanced missile defense, and AI-enabled technology,” he said.
RTX spent two months building a base around $180, and it now trades above its 50- and 200-day moving averages, the average closing price over the last 50 and 200 trading days. When a stock sits above both, the trend is pointing up over the short and long term.
The line CJ is watching is $200. “A decisive move through the psychologically significant $200 level should attract additional buying interest, setting the stage for new highs over the next two months and my price target of $250,” he said. RTX closed Thursday at $199.40.
NATE BEAR | Lockheed Martin (LMT)
“Just beat earnings, near all-time highs,” Nate told me.
Lockheed (LMT) builds the F-35 fighter jet and the PAC-3 interceptor, a missile designed to knock incoming missiles out of the sky. Last quarter, its sales rose 11% to $20.7 billion, and it raised its outlook for the year for the second quarter in a row.
The bigger number is the backlog, the orders a company has signed but not yet delivered. Lockheed’s hit a record $292 billion, including $52.5 billion from a single PAC-3 award.
Lockheed has years of work already on the books before Congress approves another dollar. Nate’s target is over $683.27.
KARIM RAHEMTULLA | Parsons (PSN)
“Parsons. Just reported good numbers. Anti drone technology,” Karim told me.
Parsons (PSN) works for the military and on big infrastructure projects. Last week, it reported a record $9.4 billion backlog and its best profit margin ever, and adjusted earnings came in at $0.89 a share, up from $0.86 a year ago.
Drones are cheap to build and hard to stop, and Parsons won a $70 million order this year for systems that defend bases against what it calls “emerging aerial threats” across Europe and Africa.
Shares slipped after the report on a softer full-year outlook.
BRYAN BOTTARELLI | Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN)
Bryan’s watchlist is the whole sector at once. He likes DFEN, the leveraged basket of the top defense/aerospace companies.
DFEN tracks the Dow Jones U.S. Select Aerospace & Defense Index, and it’s built to move three times as much as that index in a single day. Its biggest holdings include GE Aerospace, Boeing, and two names from this list, RTX and Lockheed Martin.
That leverage cuts both ways. The fund only aims for three times the index’s move one day at a time, so over weeks of choppy trading, your results can drift far from three times what the sector did. That makes it a tool for short-term trades.
Once the yard signs come down, keep one eye on Congress.
The stopgap keeping the Pentagon funded runs out December 11, and $1.5 trillion is still waiting on a vote. When that money moves, these companies cash the checks.
