The industrial sector has been a laggard this year, an unfortunate status highlighted by the 2.4% drop for the Industrial Select Sector SPDR (NYSEArca: XLI) over the past 90 days. The S&P 500 is up about 2.4% over the same period.
Signs are emerging that investors should not be too hasty in their vilification of the industrial sector and that positivity comes courtesy of aerospace and defense stocks.
“For the last 6 months or more Aerospace stocks have done nothing. They have just moved in a range heading sideways. But with few eyes on them they are now at the end of the tarmac and revving their engines to take flight,” notes Greg Harmon of Dragonfly Capital.
That positivity has carried over to some once high-flying, but recently ground ETFs. For example, the iShares U.S. Aerospace & Defense ETF (NYSEArca: ITA) has climbed 5.2% in the past month after tumbling almost 8% for the two months ended Aug. 10. The PowerShares Aerospace & Defense Portfolio (NYSEArca: PPA) is higher by 4.7% after losing 6.3% over the previous two month period and it is some familiar names that are lifting these ETFs. [Aerospace ETFs in Focus]
Dow component Boeing (NYSE: BA) “has 4 things in its favor to move higher. The price is about to break the neckline of an Inverse Head and Shoulders pattern. This targets a move to at least 140. There is also a Measured Move higher in play now that targets 135.50. Finally the 2 momentum indicators support continued upside, with the MACD crossing up and the RSI bullish and rising,” according to Harmon.
Earlier this month, Barron’s said shares of Boeing have 20% upside over the next year.
The stock is the second-largest holding a 8.6% in the cap-weighted ITA. Boeing is the third-largest holding in the $147 million PPA at a weight of 6.2%.
Harmon also noted bullish signs in Lockheed Martin (NYSE: LMT). The defense contracting giant is PPA’s largest holding at 6.8% and the third-largest holding in ITA at a weight of 6.83%.
Another aerospace option not to be lost in the fray is the equal-weight SPDR S&P Aerospace & Defense ETF (NYSEArca: XAR), which was 2013’s best-performing industrial ETF with a gain of over 52%. [2013’s Top Industrial ETF]
From June 10 through Aug. 11, XAR looked dreadful, sliding 6.6%, but the ETF has reclaimed nearly all of those losses with a 6% gain over the past month. XAR is exceling despite not featuring Boeing among its top-10 holdings. The ETF does, however, feature ample large-cap aerospace exposure among its top-10 holdings with Lockheed, Northrop Grumman (NYSE: NOC) and General Dynamics (NYSE: GD) combing for 11.1% of the fund’s weight.
SPDR S&P Aerospace & Defense ETF
