Is Northrop Grumman a Good Investment?

PHOTO CREDIT: Northrop Grumman

OVERVIEW

Northrop Grumman Corporation is a company based in the United States. The company designs, manufactures, and sells defense equipment and solutions to countries around the world. The company makes a wide range of aircraft (like the B-2 and the E2), unmanned aircraft (like drones), and a wide range of other missiles and defense systems. The company was founded in 1939.

Why You Should?

  1. Northrop Grumman is a great reopening play in an investor’s portfolio. The company saw a slight drop in demand for defense contracts internationally as countries focused to spend money on COVID-19 instead of defense. However, once this pandemic ends, the company will continue to see a spike in demand for its products.
  2. The Biden administration looks to spend a record amount on defense spending over the next couple of years. This will help Northrop Grumman continue to acquire new contracts for its products in the mid to long term. The defense industry, in general, will continue to benefit off higher defense spending for future administrations as well, making it a good long-term option.
  3. As the longest war in the history of the United States came to an end, the Taliban overran the defense of Afghanistan and took over the country once again. This further increases tensions in the area, something that will further drive an increase in defense spending as the US looks to maintain surveillance in the area. This will benefit investors in the company.
  4. Outside of the Middle East, global and geopolitical tensions continue to rise. For example, as China continues to crack down in the East Asia area and as Russia continues to become more provocative, I do not see a scenario where defense spending will ever go down. The DOD will continue to vouch for more spending to protect the United States’ interests around the world.
  5. Like other defense stocks, Northrop Grumann offers a solid dividend to its investors and continues to increase this amount every year. This company is a great starter investment for people looking for a safe and high-dividend stock option. At the moment, the company offers a dividend of $6.28 per stock (1.77%).
  6. Northrop Grumman is an extremely profitable business, like the rest of the defense industry. Though the company is extremely profitable, the company’s stock is still fairly cheap. At the moment, the company operates at a 12 times price to earnings (profits) ratio. I think that this multiple can expand slightly, further driving the company’s stock price.

Why You Should Not?

  1. The company faces tough competition in the defense industry. Some of these competitors include Raytheon Technologies, Boeing, Lockheed Martin, and many others. This competition might hurt the company and its investors in the future.

MY OPINION

I think that Northrop Grumman is a great long-term investment due to its position as a good reopening play, positive impacts from the Biden administration, the Taliban takeover of Afghanistan, the rise in geopolitical tensions, a profitable business, as well as a good dividend. however, tough competition might hurt the company and its investors in the future.

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Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.

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Aaditya Patel

Aaditya Patel

Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.

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