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You'll want to pay close attention to the best defense stocks to watch this year, because these three picks are ideal for investors looking for steady, long-term growth.
They're all linked to what Money Morning Chief Investment Strategist Keith Fitz-Gerald calls an "Unstoppable Trend."
Unstoppable Trends are forces that drive stock growth and are immune to major calamities, like political upheavals or economic recessions.
And of these trends, one of the most powerful will propel our three best defense stocks to watch in the years ahead…
War, Terrorism, and Ugliness – an Unstoppable Trend
Our top three defense stocks to watch are closely linked to Fitz-Gerald's Unstoppable Trend of War, Terrorism, and Ugliness.
This trend, unfortunate as it may be, is one of the most powerful of Fitz-Gerald's Unstoppable Trends.
There will, unfortunately, be plenty of War, Terrorism, and Ugliness this year, extending as far as the eye can see.
A growing number of people now have access to weapons, including those sophisticated and once unavailable – even unknown – to the general public.
These weapons are not just traditional military hardware, either. They are increasingly either standalone or computer-guided weapons.
Growing numbers of people also now have information they didn't have once, including that which might foster war.
Among the top jobs of defense companies is the development of technology or products that help prevent wars.
Worldwide, spending on military uses is extremely high. Roughly 2.5% of global gross domestic product (GDP) is dedicated to budgets for military and defense spending every year. That's nearly $2 trillion per year.
That's a massive market for defense stocks….
The United States is the world's top defense spender. Our $596 billion defense budget represents 37% of the entire world's defense spending, according to the Stockholm International Peace Research Institute.
The next top seven countries together don't spend as much. But they still spend a hefty amount: $567 billion on defense annually, according to the National Priorities Project. In order, the top defense spenders after the United States are China, Saudi Arabia, Russia, the United Kingdom, India, France, and Japan.
Some of these countries are undergoing rapid economic development. The more their economies grow, the more likely they will be spending on defense technology, such as cyber tools and weapons.
Wars are fought over boundaries and ideologies. And, of course, they are also often fought over resources. Fitz-Gerald believes that these countries will increase future spending on defense to protect their own resources from incursion or threats.
Countries develop offensive and defensive weapons, both standard and cyber, without regard to national borders. The headquarters of the top defense stocks to watch are all in the United States. But they also may sell products to countries worldwide…
Our top defense stocks to watch all produced more than 15% in gains for 2016, compared to the S&P 500's nearly 10% return. We expect excellent shareholder returns in the future, too…
So what are our three best defense stocks to watch now? Check them out…
The Best Defense Stocks to Watch No. 3: Northrup Grumman Corp.
The No. 3 defense stock to watch is Northrup Grumman Corp. (NYSE: NOC).
NOC has three primary units: Aerospace Systems, Electronic Systems, and Information Systems.
Northrup Grumman and Lockheed Martin often partner on big projects. One example is the F-35 fighter jet. Northrup Grumman is providing the computers that do the tracking, the radar, and tools for navigation.
Aerospace Systems is the largest contributor to revenue and profits. Its revenue makes up almost 40% of NOC's total. According to FactSet, that's $10 billion annually.
Aerospace Systems' revenue boosted third-quarter 2016 earnings by nearly 17%.
Northrop stock, at $236.73 currently, has risen 25% in the last 12 months. Its $3.60 dividend currently gives shareholders a 1.52% yield.
The Best Defense Stocks to Watch No. 2: Raytheon Co.
Raytheon Co. (NYSE: RTN) deploys its expertise in defense systems, government electronics, and information technology.
RTN's biggest and most profitable sectors are Integrated Defense Systems (IDS) and Missile Systems (MS).
In 2016, IDS was awarded a $265 million contract to manufacture Patriot Air and Missile Defense Systems for U.S. allies. IDS was awarded a contract for new additions to the U.S. Navy's radar program to the tune of $92 million last year as well.
Almost 33% of Raytheon's revenue stems from ex-U.S. nations. African and Middle Eastern nations both buy Raytheon's products for national defense against their neighbors.
Raytheon's price per share is $148.22 today. It has risen 20% over the past 12-month period. Raytheon also has a robust $2.93 dividend. The yield on the current share price stands at 1.98%.
Almost 75% of analysts surveyed by FactSet have a "Buy" rating on RTN. Their target price is $159 per share, on average. That's more than 7% higher than the current price.
The Best Defense Stocks to Watch No. 1: Lockheed Martin Corp.
Lockheed Martin Corp.'s (NYSE: LMT) market capitalization is the largest of any defense company – anywhere.
Lockheed Martin performs research, development, and manufacturing for products in security, defense, and technology.
We said earlier that global defense spending as a percentage of GDP was 2.5%. However, the United States spends more than that percentage – approximately 3%.
And Lockheed Martin benefits from a highly substantial part of this 3% every year.
One of LMT's premier products is the F-35 fighter jet. The Pentagon has awarded LMT billion-dollar contracts for F-35s, and so have countries allied with the United States.
All of our best defense stocks to watch boast superb dividend yields. Lockheed Martin's $7.28 yearly dividend gives investors a 2.86% yield at today's $254 share price. That's a truly excellent and sustainable yield.
LMT shares have climbed 18% over the last 12 months. Fitz-Gerald forecasts a further climb in 2017.