Following the June 27 presidential debate, the leader of Russia, Vladimir Putin, openly stated how seriously he takes former President Donald Trump’s commitment to ending the war in Ukraine. With Trump vocal about the importance of ending America’s wars, it’s likely the defense industry will take a hit following the closure of Europe’s biggest war in almost 80 years. As a result, it’s highly likely that there will be several defense stocks to sell to maximize profits now from medium-term holdings.
This isn’t because these companies are financially insolvent or no longer relevant during a Trump presidency, but rather because they are not as heavily funded by the government as they are under the current Biden administration. As such, investors may want to prepare for the eventuality that the bull run the defense industry stocks had in 2022 and 2023 will likely come to an end should Trump and his foreign policies prevail in November.
RTX (RTX)
One of the defense stocks to sell with the most confidence from institutional investors, RTX (NYSE:RTX) has benefited greatly from the war in the Middle East. Today the company operates as a conglomerate of three major components, Raytheon Technologies, Collins Aerospace, and Pratt & Whitney. This results in a defense corporation whose revenue incomes are partially exposed to commercial market trends, but buffered by defense spending. Yet two major problems could arise from a Trump presidency.
Firstly, Congress might want to increase funding for Ukraine, but Trump can veto the bills. Pair this with Republican lawmakers who have been more skeptical of foreign aid compared to Democrats, and RTX could lose big. That’s because a spending cut in Ukraine could impact RTX’s bottom line, as they recently secured a $282 million contract to supply air defense systems to the country.
Secondly, a potential re-election of Donald Trump could pose a challenge. Trump has publicly advocated for ending the wars in Israel and Ukraine. This stance could threaten RTX’s $1.7 billion program to provide Patriot missiles to both NATO and Israel. Thus, it’s clear that a change in government policy could cut deep into RTX’s booked revenues and impact future performance.
Lockheed Martin (LMT)
Despite being the biggest name in the modern aerospace industry, Lockheed Martin’s (NYSE:LMT) outlook after the 2024 election could decrease significantly. Despite its recent contract wins in the satellite sector, its contracts to supply Javelin missiles and F-35s could be at risk of cuts to NATO funding and military acquisitions.
Moreover, Trump has widely advocated for spending cuts on the grossly overbudget F-35 program. In fact, seven years ago, the former president tweeted how billions of dollars need to be saved on out-of-control programs like the F-35. This slashed LMT’s stock value by $4 billion in the days following his tweet.
This kind of rhetoric from Trump helps underscore his commitment to better managing taxpayer money, which in turn means less financial flexibility for contractors like LMT. Thus, should the former president return to office, he could enact sweeping measures to reign in government spending on the admittedly over-engineered fighter jet.
General Dynamics (GD)
As the primary producer of the M1 Abrams tank, which recently saw action in Ukraine, General Dynamics (NYSE:GD) stands to lose a significant source of revenue potential in the event of peace in Eastern Europe. Considering that Trump openly intends to end this war, the potential resupply revenue that would come from expended tanks and other military materials produced by General Dynamics could come to a quick close.
Moreover, while the company is very broadly diversified across several different defense sectors from aviation to maritime to ground systems, the Trump administration may curtail some spending on the programs that General Dynamics relies on beyond the M1 tank program.
As a result, investors may want to consider taking profits on General Dynamics’ strong run over the last few years before it corrects in the face of a more conservative administration on the side of foreign policy.
On the date of publication, Viktor Zarev did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.