Defense Stocks to Enjoy a Boom With New Congress

Ron Epstein has been covering the aerospace business for Merrill Lynch since 2001. Before that, he was an engineer at Boeing one of the many defense and aerospace firms whose shares have soared above the market for several years.

With defense stocks stalling ahead of the midterm elections, we asked the 51-year-old analyst to re-evaluate the sector. He sees plenty of headroom for Boeing (ticker: BA), Lockheed Martin (LMT), and General Dynamics (GD), among others.

Epstein: The change to Democratic control of the House is the best scenario for defense spending. It points to upside in the defense budget. Gridlock keeps budgets intact, and defense is a bipartisan issue.

Is there fuel left in aerospace stocks?

Both commercial and defense seem to be in very strong shape right now. Global air travel continues to rise at a better-than-Goldilocks pacestrong, but not too strong. It has driven a lot of demand for airplanesfor both Boeing and Airbus [AIR.France]. So thats one important thing.

A second thing is that we are in a really robust defense-spending cycle. Everybody in the defense business has had a healthy backlog buildupto a book-to-bill [orders coming in versus orders going out] thats between 1.2 and 1.5. Were in the midst of an upturn that started in 2016, President Barack Obamas last year. Then you had follow-through with the current administration. We are ....

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