Defense Stocks Hit All-Time Highs On Arms Deal: 5 Best Buys

President Donald Trump sealed a multi-billion arms deal with Saudi Arabia, a move that strengthened a decade long alliance with the world’s largest oil exporter as the kingdom’s economy opens. Arms sales to Saudi Arabia catapulted stocks in defense companies to record highs.

And history shows that such key deals boost the value of defense firms. Banking on such bullish trends, investing in some solid defense stocks seems judicious.

US-Saudi Arabia Seal Weapon Deal

Trump signed an almost $110 billion arms deal with Saudi Arabia, which could be worth $350 billion over the next 10 years. The White House said that this was “a significant expansion of security relationship” between the countries.

Saudi Arabia imported $3 billion worth of U.S. arms last year, the maximum by any country. Saudi Arabia is also the primary destination for U.S. arms sales, with the kingdom acquiring nearly 10% of U.S. exports in the 2011 to 2015 period.

The oil-rich kingdom is on a broad-based push for economic development and is looking forward to signing a series of deals with private U.S. corporations worth tens of billions of dollars. The arms package will boost Saudi Arabia’s military prowess as tensions flare in the region. Saudi Arabia is being targeted by radical Islamic extremism, hence, such a deal will help the country counter terrorist attacks.

The U.S. also views the nation as a potential partner in its endeavor to check the global ambitions of Iran. Further, the Saudi Arabia deal could lead to additional sales for both Israel and the Persian Gulf countries, all of whom are apprehensive about Iran’s aggressive foreign policy and its support toward terrorist groups in the region.

Benefactors of the Deal

Lockheed Martin Corporation (LMT - Free Report) is poised to be the biggest gainer from the deal. The world’s largest defense contractors, whose technology was part of the agreement, said that the deal “will directly contribute to Saudi Arabia’s Vision 2030 by opening the door for thousands of highly skilled jobs in new economic sectors”. According to Lockheed Martin, Saudi Arabia has “expressed its intent” to buy $28 billion worth of weapons systems from the company. This includes 150 Sikorsky helicopters, the THAAD missile defense system and four littoral combat ships.

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