Another day, another 52-week high in most of the aerospace and defense stocks. It just seems like this group can do no wrong, despite sequestration, which took a real meat axe to it.
How is this possible? How can these companies be doing so well? It's pretty simple, actually. Just take a look at the most recent headlines and you will know how. Raytheon (RTN) was up big yesterday and that's because it won a $2.4 billion Patriot missile order from Qatar. That's a gigantic order, and it is a tacit recognition that the United States won't always be there for Qatar. It's found money for Raytheon and that unit. And it won't be the only found money. A host of European countries, growing mistrustful of their U.S. ally, are said to be considering multi-billion orders for the anti-missile defense system.
Northrop Grumman (NOC)? How about a $657 million order for unmanned armed vehicles. That's a big order, but who knows if the United States, this new United States, has the gumption to stand up to the North Koreans?
Lockheed Martin (LMT)? It got a nice pick-up of $308 million for some new radar from Taiwan for their F-16 fighter planes that might help them with Chinese adventurism.
The U.S. government just gave the Egyptian government ten Apache Helicopters -- a force to be reckoned with if ISIS expands its universe to attack the sworn foe of the movement.
You see, it is happening. The notion of the U.S. being the global policeman is breaking down. Whether it be the peace talks with Iran, or the pullouts from Afghanistan and Iraq, or the recognition that the United States may not be there if China starts trouble, the orders from overseas are creating the upside surprises we didn't think were possible not that long ago.
This is a group that last year came under heavy fire after the sequestration order that limited defense spending. While it has been more than two years since the deal that hit the military the hardest, we still haven't seen its repeal, although Washington wants to boost our own capabilities and is placing gigantic orders like the $12.5 billion armored truck contract that General Dynamics (GD) is vying for to replace the Vietnam-era variety.
Still, when short sellers were roaming the planet looking for companies that were going to report shortfalls, they seized upon this group as a natural one to hate. Sluggish. Thought to be banned from merging because of antitrust concerns, up a great deal of years, they seemed like natural fodder.
But they weren't, because our allies are now coming around to admitting that they have to arm themselves. Just think about it. Turkey and Jordan are right in the path of Isis. So are the Saudis, who think our overtures with Iran are sacrilege. Iraq has lost a huge amount of military equipment to Isis.
Then go to Russia and see the weapons that Ukraine needs and add to them the weapons that the Western bloc nations have to have if Russia decides to turn on them. You think that's farfetched? Tell that to the Poles.
Then go clear across the globe to Asia. South Korea's dealing with the usual rogue nation of North Korea, which seems more rogue than ever now that it is provoked by a movie, of all things. Do you think that Japan can trust a China that's building aircraft carriers, let alone Taiwan? I wouldn't think so.
The world's re-arming. We have pretty much the only companies that still make arms in sufficient quantity and size to give you security if you are a threatened regime. And that's how these stocks can keep rolling higher, despite the now stingy U.S. Congress and its sequestered military spending.