Defense industry stocks have underperformed, in part because of concerns that spending would be slashed in the debt ceiling showdown. Now that a resolution appears to be in place, Jay Van Sciver and Keith McCullough see bullish opportunities.
“The reality is, within the Industrials sector (XLI), defense names tend to be very good Quad 4 performers,” Van Sciver explains in this clip from The Call @ Hedgeye. “They tend to have good cashflow, they tend to not be as cyclically exposed.”
“What the signal saw was the risk of defense spending cuts, not actual defense spending cuts,” McCullough adds. “Now, you get things that are oversold that are bullish from a long-term Tail perspective (three years or less in duration) that have lost their immediate-term Trade and Trend momentum. Those quite frequently are the ones to buy because you get an event risk that goes away that wasn’t actually true.”
To watch Van Sciver’s “Best Ideas” roundup of defense stocks at 2:00pm ET Wednesday, subscribe to Industrials Pro.
