This story was originally published here.
Many sectors that have traditionally been favorites of investors have been upended in recent years. In the wake of the novel coronavirus pandemic, some of these may never recover. Retail was already in trouble before coronavirus lockdowns shuttered stores. Unless your name is Amazon (NASDAQ:AMZN), survival mode is now the name of the game. The oil industry? A price war combined with cratered demand for gasoline and jet fuel has hammered oil stocks.
Pandemics, trade wars, rogue states, social unrest — none of these seem to keep defense stocks down for long. In fact, in times of crisis, demand for the products produced by many companies in this sector actually increase.
Not certain about whether to invest in a company that produces deadly weapons? No worries, there are options here that let you take advantage of defense industry performance without being directly involved with weapons systems.
Defense Stocks to Buy: TransDigm Group (TDG)
Although resilient, defense stocks can still be impacted in the short term by market panic to a crisis like the coronavirus pandemic. That’s exactly what happened to TransDigm. It was heading to 200% gains over the past five years before the panic over the new virus began. TDG stock dropped from a close above $655 in mid-February before dropping to $245.79 on March 18. That was a loss of 63% in a single month.
Now at $469, TransDigm is in recovery mode. This is a slower rate of recovery than some other defense industry stocks. The reason is TransDigm’s aftermarket aircraft part business. It’s taking a hit with so many commercial airplanes grounded. The business will bounce back — planes always need parts — but it will take time before commercial airlines are flying near pre-pandemic levels again.
Therefore, some patience may be required for TransDigm. However, its high-margin business of supplying parts for military aircraft including the AH-64 Apache helicopter and F-16 fighter jet will remain lucrative.
And of the estimated 63,000 commercial and military planes globally that use parts from TransDigm, the company says it is the sole available source for 80% of the parts it sells. That reliance bodes well for the long-term prospects of this Cleveland-based aerospace company.
Editor's Note: Click here to keep reading.
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