Elbit Systems (ESLT-Q)

(Past Top Pick, Aug.14, 2017, Down 6%) He's owned this for five years as a core holding. It's been sideways the past year for some reason, but sometimes that just happens. The last quarter, they had 11% backlog growth and announced a few acquisitions not yet in the numbers.

Has something materially changed in their operations? He is not aware of any changes that could be resulting in the stock declining in value and it trades near all-time highs. Business continues to look good and military defence spending will continue to grow. The founding shareholder holds a lot of the stock. Israeli defence spending continues at a high percentage of GDP. One third of their revenues are in cyber-security.

The world's largest producer of drones. They have the broadest product line, and the average drone globally is about 7 years old. They’re also the leader in software defined radios. They have a duopoly in fire controlled systems. About a 3rd of sales are in cyber warfare, both offensive and defensive.

Israel’s largest publicly traded defence contractor, and primarily involved in electronics. About a 3^rd of sales is traditional military electronics, things like radars and software defined radios. About 1/3 sales are cyber, including cyber defence and offensive cyber weapons. Another 3^rd are in unmanned systems, primarily unmanned aerial systems, where they are the world’s largest producer with the broadest product line. The average age of the drone is 7-10 years old. If you include only the drones that are used by the militaries outside of the US, the average age is a bit older, so expects there will be an upgrade cycle. On the electronics side, electronics has grown at twice the rate of the defence budget growth. This company is well positioned in terms of the segments it serves.

Also likes Northrop Grumman and Raytheon, but would be careful about doing too much. In the case of Raytheon, part of the moat is that they have their own semiconductor foundry, which has allowed them to win share within radars. If they have a chip no one else has, that extends the power, range and reliability of radar. In the case of Northrop, so much of the backlog became classified that they were forced to classify the entire backlog. This is helpful, because classified backlog is the best thing to look for, for future growth. It is very well positioned in space. The Minuteman missiles are quite old and are going to be modernized.

Israel’s largest publicly traded defence contractor. It is divided into 3 segments. One third is being the largest drone producer globally with the broadest product line. The average drone is military and about 7 years old, and thinks they are going to get replaced. A second third is traditional defence electronics such as fire control systems. The final third is their cyber division which includes both offensive and defensive cyber which national security agents may need to deal with terrorist threats. Dividend yield of 1.3%. (Analysts’ price target is ILS 337.00.)