Defense Stocks Rise on Bush Election Win
The Associated Press
Defense stocks soared to 52-week highs Wednesday morning as George W. Bush was poised to make a speech accepting re-election, a situation promising continued spending on overseas warfare.
The rally also made up for the Tuesday afternoon sector slump, which followed rumors that John Kerry was set to take the election, an analyst said.
By late morning, the Spade Defense Index, which consists of 51 component companies, rose 2.4 percent to 1,574.06, above its previous 12-month high of 1,561.88. Also, the smaller Amex Defense Index rose 3.4 percent to 815.39, nearing the Oct. 4 high of 820.43.
"There undoubtedly had been considerable concern about defense stocks in the case there was a Kerry administration, given the many remarks he had made about flattening the defense budget," said Paul Nisbet, analyst with defense-stock specialist JSA Research in Newport, R.I. "Now there is evident relief that this way of thinking is gone."
Kerry had threatened to cut missile defense spending, and proposed putting 40,000 additional troops in Iraq at a cost of $5 billion - a sum Nisbet says would have come out of other programs including weapons spending.
But Eric Hugel, an analyst with Stephens Inc. in Little Rock, Ark., said that much of Wednesday's gain is simply an act of making up what was lost in yesterday's afternoon panic.
"Defense stocks really took it in the chin yesterday," Hugel said. "Wall Street likes consistency. If there were a change of administration, there would be a lot of questions about how things would have changed."
Industry giants rallied early in the day on the New York Stock Exchange, including Boeing Co., up 3 percent to $51.35 after closing down 17 cents Tuesday; General Dynamics Corp., which climbed 4.6 percent to $105.08 after falling $1.56 to $100.48; Honeywell International Inc. higher by 1.7 percent to $35.04 after falling 65 cents to $34.45; and Northrop Grumman, which was up 4.3 percent to $53.86, more than making up the 95 cents lost Tuesday.
Nisbet said that while the market absorbs such changes relatively quickly and the immediate rally will soon be over, the defense sector stands to gain an average of 15 percent over the next year.
Nisbet is particularly optimistic about Orbital Sciences Corp., since 25 percent to 30 percent of its business consists of missiles defense. The Dulles, Va., company's shares rose $1.43, or 13.3 percent, to $12.20 on the NYSE.
Also, Nisbet said L3 Communications Holdings Inc. stands to gain from the election results, since the New York-based company works in both defense and homeland security sectors. That company's shares rose $1.79, or 2.7 percent, to $67.94 in midday trading on the NYSE.
Hugel agreed that the sector's long-term outlook is promising. "The only thing it depends on is the 2006 budget," he said. "But we still have a pretty good idea of that."
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