The United States Air Force announced yesterday the winner of an $80 billion competition for the rights to make the new stealth bombers for the military arm. Bloomberg reported Northrop Grumman (NOC) beat out stalwarts Lockheed Martin (LMT) and Boeing (BA) for the contract. The consensus from around the markets seems to be that the contract is a net positive for the sector which can be tracked with the iShares U.S. Aerospace & Defense (NYSEarca: ITA) exchange traded fund.
The three giants make up nearly 25% of ITA’s holdings at the moment as the deal has moved it about 1.5% today as the stocks are projected to rise a bit more. Bloomberg projects that the deal could move Northrop Grumman stock up 4-6% and the two competitors 1-2% each.
ITA has had a solid year thus far gaining 9.7% while making great strides within the past month to the tune of 6.6%.
The win came at a crucial time for Northrop Grumman, Bloomberg explains, “There was a David and Goliath situation going on, this is disappointing for Lockheed Martin, pretty bad for Boeing, but transformational for Northrop Grumman. They go from being a collection of operating units to a first-tier prime with a strong central core.”
The Street quoted Jim Cramer, “The new bomber contract that Northrop got – it’s huge. Much more than the stock’s up. Still an opportunity. A big one. And, the fact that Lockheed Martin’s going higher even though it lost the deal? What does that tell you about defense spending?”
The fact that the losers in the deal still are going up does point to the industries potential for growth. The climate in the middle east and increasing commitment from the government to fight ISIS points to more spending on military investments.
ITA recently raised above its 50-dayMA and is now pushing its 200-day.