When seeking out the most pristine of all stock market sectors to invest in, I would argue that the aerospace defense sector takes center stage.
There are some coveted attributes to describe just how prized this sector is and why having a strong portfolio weighting to the sector is about as good as it gets in terms of historical performance accompanied by low volatility. The following are valid characteristics of the bluest of blue-chips that comprise what is an elite set of stocks:
- Embedded government spending that is set to increase for the next decade
- High barriers to entry due to technological advances
- Wide moats that are defined by long-term contracts — limiting competition
- Steady top- and bottom-line growth with insulated profit margins
- Oligarchy of only a few companies that dominate the space
- Coveted core holdings by long-term buy-and-hold institutional owners
The companies that define the aerospace/defense sector are world-class U.S.-based enterprises that deserve a place in every investor’s portfolio. They include, in the order of importance, the following:
Lockheed Martin (LMT)
Northrop Grumman (NOC)
Raytheon Co. (RTN)
Boeing Company (BA)
General Dynamics (GD)
United Technologies (UTX)
Rockwell Collins (COL)
L3 Technologies (LLL)
Orbital ATK (OA)
BWX Technologies (BWXT)
From these 11 stocks, investors can build a bulletproof portion of their portfolio supported by rising spending from the Pentagon that is committed to rebuilding an aging military and defending America’s interest in what is a world fraught with large-scale risks (North Korea, Iran, Syria, ISIS, etc.). It is my view that business for these key companies will flourish for many years to come while we live in a dangerous world.
And I haven’t met anyone lately who believes peace is going to break out all over any time soon with a world composed of “utopian global citizens” emerging. John Lennon was the last guy who sang about that prospect and he was gunned down in cold blood outside his own apartment. Instead, we live in a violent world of power-hungry manic factions and nations that want to wreak havoc on good people because of religion, territory, natural resources, greed and pure evil intentions simply to rule the lives of others. Hence the need for a strong defense system.
For income investors looking for a way to play it safe with their risk capital and derive a fantastic yield at the same time, I recommend employing a ‘stress tested’ bull-call-spread strategy that is the basis of my Instant Income Trader advisory service. Because most of the stocks listed are trading between $100 and $300 per share, it’s an expensive proposition for most investors to pony up for a stable of several stock holdings that encompass this cherished sector of institutional darlings.
In lieu of owning these expensive stocks outright, I recommend buying a basket of long-term, deep-in-the-money call options called LEAPS (Long Term Equity Anticipation Securities). One can control, for the next two years, $1 million worth of defense stocks for as little as $100,000, or roughly 10% of the cash cost. And that’s only the first side of the bull-call-spread strategy. The other part is to sell short-term (30-60 days) out-of-the-money calls against the underlying LEAPS with a goal of generating an average of 10-20% in net returns over just one month or two months.
Take that equation and extrapolate it out over the course of a year and it doesn’t take much brain power to do the math on the kind of annual total return we’re targeting. Using deep-in-the-money, long-term call options eliminates a lot of time premium, buys time for the underlying stocks to perform and places leverage in what is arguably the most dependable stock market sector for investing right now. We’ve been booking gains all year in Boeing, Lockheed Martin, Northrop Grumman and Raytheon Co. and I don’t intend on changing that winning formula any time soon.
The only question that needs asking is whether income-oriented investors want to own their own portfolio that is “locked and loaded” for serious income and capital gains in a sector that is typically trading in the green when the market is selling off and often leading the market when the stocks are getting bid up. Go see how generating terrific income from our bull-call-spread strategy can find a place in your portfolio by clicking here to take a tutorial on how we get it done every week, month after month with only the very best blue-chip stocks that are true bull market leaders.
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