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Research Vlog: North Korea & Defense Stocks

05.07.2018 | Ben Phillips, CFA
North Korea Summit Prompts Defense Stock Selloff



This Week's Highlights

  • This isn’t the first time North Korea has committed to a denuclearization summit. Kim Jong Un will almost certainly look to prior deals for guidance and historical reference. 


  • While historic first steps have been taken, we believe there are numerous details that will need to be finalized which may take months, even years, to finalize.

  • Meanwhile, the White House and Republican controlled Congress continue to push for a military buildup and return to higher defense spending levels after years of decreased defense spending under the Obama administration.


  • Below are the companies we're watching:

    • U.S. Defense Contractors: Defense contractors may be positioned best to benefit from increased U.S. defense spending. Lockheed Martin (LMT), Boeing (BA), Raytheon (RTN), Northrop Grumman (NOC), and General Dynamics (GD) were each within the top 6 defense contractors by 2016 defense revenue. Each company may experience strong revenue growth under increased defense spending.


    • Defense Industry Suppliers: In our view, suppliers to the aerospace & defense industry benefit from increased defense spending. Hexcel (HXL) manufactures composite materials, such as adhesives & honeycomb, for the aerospace market. FLIR Systems (FLIR) develops and manufactures imaging and recognition solutions for the military and law enforcement, which the Government and Defense business unit accounting for ~36% of the firm’s Q1 2018 revenue.



Read More: North Korea Summit Prompts Defense Selloff.






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Important Information

Active Weighting Advisors LLC ("AWA") is an SEC-registered investment adviser that manages ETFs under the brand name EventShares Funds. Mr. Phillips is the Chief Investment Officer of AWA. The views expressed are subject to change, and no forecasts can be guaranteed. The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. AWA is not soliciting any action based on this document. In preparing this document, the author has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources. Investing involves risk, including the possible loss of principal and fluctuation of value. Mr. Phillips and AWA disclaim responsibility for updating information. In addition, Mr. Phillips and AWA disclaim responsibility for third-party content, including information accessed through hyperlinks. For more information about EventShares, contact us by calling 877.539.1510 or visit our website at www.EventShares.com.


Policy Investing

Policy investing focuses on understanding the laws and regulations that impact companies. It attempts to find mispriced assets and invest in those companies before the market understands the implications to a company’s profitability and operations.