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Defense Stocks Are Booming and Won’t Slow Down

By U.S. News & World Report

Is it time to bail on defense stocks, or is there more upside to come?

The sector, which includes giant companies such as Lockheed Martin Corp. (NYSE: LMT), Raytheon Co. (ticker: RTN), and United Technologies Corp. ( UTX), is on an impressive run, beating the broader market index by a factor of nearly 2-to-1 over the past 24 months.

Despite that frothy performance, analysts say there could be more gains to come.

The SPDR S&P Aerospace & Defense exchange-traded fund ( XAR), which tracks the stocks in the Standard & Poor’s Aerospace & Defense Select Industry index, is up about 36 percent in the two years versus 19 percent gains for the S&P 500 index, which tracks the big stocks in the market. Neither figure includes dividends.

Even before the new administration took office, it was clear that defense stocks would do well.

[See: 7 ETFs That Allow You to Invest in Space.]

Recent history. Just because the world is threatening doesn’t necessarily mean that the U.S. military will get to spend on new equipment. Under the Obama administration, the annual U.S. defense budget fell to an inflation-adjusted low of $582 billion, down from a peak $772 billion during the military build-up after 9/11, according to recent research by Morningstar.

Manufacturers of military hardware such as jet fighters, rockets and missiles have needed to cut back over the past few years, says Jim Corridore, a defense and aerospace stock analyst at CFRA in New York. The companies that make those high-tech items are now lean, which means that any additional defense orders will instantly add to profits in a big way, he says.

Good news. Despite failures in other areas of governing, such as the repeated attempts to kill off Obamacare, efforts by President Donald Trump to spend more on the military seem to be faring better. “Defense is one of the few areas where the administration is making some progress in building budgets,” Corridore says.

The Trump administration is asking for a defense budget of $639 billion for the 2018 fiscal year, which would be a big jump in inflation-adjusted terms from what Morningstar calls the “Obama trough” in spending.

It isn’t just U.S. spending of military hardware that is likely to pick up.

“Foreign-friendlies [a.k.a. allies] are also ramping defense spending to get closer to conforming with their NATO pledge, or, in the case of non-NATO countries, as a deterrent against growing global and regional threats,” says Terry Gardner, a senior managing director at CJ Lawrence in New York.

As president, Trump has lambasted some members of the NATO alliance for not spending what they promised on their own defense.

[See: How 8 CEOs Reacted to Donald Trump’s Immigrant Ban.]

All of this talk of more spending has sent stock prices up to levels that Morningstar says are above fair value, which is a proprietary calculation it makes to determine what the stock is worth based on a variety of factors in including the stability of future earnings.

Momentum for defense contractors. The fact that Morningstar, and others, see valuations of the stocks as high doesn’t matter to some investors. There are those who look at momentum, also known as trend following.

“I don’t give damn about price-earnings ratios because they don’t matter,” says Richard Suttmeier, CEO and founder of Global Market Consultants in Land O’Lakes, Florida. “Buyers are coming into the sector regardless of the P/E in anticipation of defense spending increases. As long as the new highs beget new highs” in the stock prices then it will be a positive bet, he says.

How to invest. It’s worth noting that the aerospace and defense businesses are inextricably linked, So while Boeing Co. ( BA) is known for commercial aircraft, it also has a military arm. Investors could choose to buy shares in other major contractors such as General Dynamics Corp. ( GD), Northrop Grumman ( NOC) and L3 Technologies ( LLL).

Alternatively, they could invest in specialty funds which buy many such stocks.

The XAR ETF has annual expenses of 0.35 percent, or $35 per $10,000 invested. Alternatively, there is the iShares US Aerospace & Defense ETF ( ITA), which tracks the stocks in the Dow Jones U.S. Select Aerospace & Defense index. It has annual expenses of 0.44 percent. Both funds are narrowly focused on the sector and they are both passive funds.

[See: 6 ETFs That Let You Buy Micro-Cap Stocks.]

For those wanting a mutual fund, try the Fidelity Select Defense & Aerospace Portfolio ( FSDAX), which an actively managed fund, meaning that the portfolio holdings change over time according to where the manager see the best opportunities. It has a minimum investment of $2,500 and annual expenses of 0.79 percent.

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Defense Stocks Are Booming and Won’t Slow Down originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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