Northrop Grumman (NOC-N)

It rallied 25% earlier this year then consolidated. His pick of the day.

The defence sector has been weak, given political uncertainty in the U.S. NOC has a strong backlog though. He prefers General Dynamics. Valuations in this space are reasonable; there's value in this sector (and in healthcare).

The defense stocks are falling out of fears that the Democrats could take the House on the Tuesday U.S. Midterms and remove the defense budget. Trump is basically an arms dealer who insulates himself from the world while he sells arms to each other and kill each other while he walks away with all the money. NOC sales are up 23%, but they didn't hit on all segments, so investors got gunshy. Only 2 of their 4 subsidiaries are making money and growing at a good clip, but not the rest.

A $43 billion market value. In the fall, and leading up to November, there was a big run up in several sectors, one being the defence sector, with a view that there would be spending whether the Democrats or Republicans won. A lot of defence stocks have basically traded sideways for the last 4-5 months consolidating that initial gain. This is one of the companies that is trading very close to its highs. A big contractor in the strike bomber and the F35. They are the leader in drone technology. A Triton drone can replace 20 aircraft. Governments try to save money and they want what they can get from drone technology. They are now opened up to sell to the EU and Japan. Dividend yield of 1.6%. (Analyst’s price target is $260.)

A very high quality company. Great management. They’ve spent a lot of time over the past several years, buying back a lot stock. You have to look at this in line with the entire defence contractor space. All the stocks have had a big rally post the Trump election, as he focuses on bolstering the US defence Department. Feels valuation is probably full here, but he would keep this it on the radar. He would be a buyer on a selloff.

From the perspective of what has happened with Trump in the election, there has been a commitment to the industrial space and the defence space. He likes the name for that and would consider it. The stock is not overbought now; it is in the 70.5 RSI, but would probably let it calm down a bit and get back into the $230-$245 range.

(A Top Pick Jan 8/16. Up 8.21%.) This is basically a play on the industrial sector. The industrial sector tends to have a period of seasonal strength from the beginning of January through to May. The chart shows a long-term trend of moving higher.

(His Top Pick stocks are still holding up as of present, but the big warning is the systemic risk that is involved with the market.) Industrial companies tend to do well between the end of January to May. You are looking for areas that are still performing well, and the only area that is seeing new orders increase above the seasonal average is the defence industry. The average gain for this, between the start of the year and the beginning of May, is 9.34%, and has been positive in 20 of the past 25 years. It also has long-term trend line support, and he has trend line support coming in at $170.