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As we approach the so-called “fiscal cliff,” investors are clearly very nervous about defense stocks. Most of the stocks in this sector fell very sharply after the election, and while they have bounced back somewhat since mid-November, they still look pretty cheap to us.
Of course, these investor concerns are not completely unfounded. If Congress and the White House cannot come up with a compromise and we go over the “cliff,” there would be mandatory cuts in federal defense spending. Our best guess--and we emphasize “guess”--is that Washington will find a way to avoid the cliff. But we also believe that most, if not all, of the risks from the cliff are already priced into defense stocks.
Also, many of the defense stocks spotlighted in our full December 2012 article pay healthy dividends, which should dampen any fiscal cliff-related volatility. Many of these Turnaround Letter stock recommendations have also been stockpiling cash over the last couple of years, which they could use to further enhance their dividends or to repurchase stock. Subscribe now (or log in if already a subscriber) to learn which defense industry hot stock picks you should add to your turnaround investing portfolio.