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 Kim Jong Un will almost certainly look to prior deals for guidance and historical reference.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.
- Investors began selling defense stocks in anticipation of a denuclearized North Korea as soon as the headlines of the historic summit were released. In our view, this selling is misplaced. Download the Policy Tracker for more policy opportunities.
- 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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