Why Defense Stocks Are Hitting Turbulence Today

Source The Motley Fool

A combination of tariff-related uncertainty and questions about the federal budgeting process are weighing on aerospace stocks. Shares of Science Applications International (NASDAQ: SAIC) traded down as much as 5% on Monday, and shares of RTX (NYSE: RTX) and Lockheed Martin (NYSE: LMT) were each down more than 3% apiece, before rallying somewhat heading into the market close.

A tough operating environment

The tariff-induced panic has extended far beyond companies that are usually associated with tariffs. Aerospace companies enjoy some carve-outs in tariff regimes, but are still likely to see costs go up as supply chains adjust and raw materials become more expensive.

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Ongoing budget battles in Washington are adding to the uncertainty. Last week, the Senate approved a framework for a federal budget plan. But the bill faces roadblocks in the House of Representatives and is not a lock to be passed ahead of a planned mid-April recess.

Fiscal hawks in the House have attacked elements of the Senate budget, including defense allocations. If the plan passes, it would allocate about $150 billion for defense procurement that would be available for contracts awarded over the next four years and paid out over the next 10.

Is now a good time to buy defense stocks?

Defense stocks don't tend to post growth figures similar to tech and other market highfliers, but investors should be compensated for that slower growth with more predictability. Times of government infighting or budget uncertainty eat into that predictability, causing investors to lose interest in defense companies.

This year's budget battle is mostly an intra-party squabble, which in theory should make it easier to resolve. But given broader market volatility due to tariff concerns, investors are understandably reluctant to give any sector the benefit of the doubt.

Long-term investors looking for portfolio ballast and a mix of income and growth have ample reason to consider adding these big defense names to their portfolios. But until some of the current uncertainty passes, there could be more volatility up ahead.

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Lou Whiteman has positions in Lockheed Martin. The Motley Fool recommends Lockheed Martin and RTX. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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