Don't buy defense stocks today

I’m not smart enough to opine on Middle East conflict. It is all terribly sad and terrible and seemingly impossible to solve. My heart goes out to all of the good people dragged down by the evil.

But I do know a thing or two about defense stocks. And looking at my Koyfin screener this morning, defense is a rare patch of green on a deep down morning…

It is grim to talk about “profiting” off of human suffering. I hope not to do this here. But the world stops for nothing, and the markets are open. So, a few quick thoughts for those thinking about joining the herd and buying in.

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Now is not the time. Those buying in are making a logical assumption. It seems likely that in the months to come U.S. support for Israel will increase, and that will mean additional business for these contractors.

But defense businesses don’t move on a dime. The programs that really impact sales and valuations take years to play out, and while incremental sales are important, they are not thesis-changing.

We saw this play out with the Ukraine conflict. Similar spike, followed by a realization that these things take time. I would expect this pattern to repeat.

It is far from clear what Israel wants from us. You will see a lot of hot takes explaining why company A will benefit because of its whatsamacallit technology. Ignore them. This is no time for predicting the future. And those hot take merchants likely don’t have inside information.

The world was a dangerous place last week. It remains so. I wish there was a more comforting argument for buying defense stocks. But that’s not where we are. Ukraine set in motion a trajectory of higher defense spending by the U.S. and its allies for the foreseeable future. The location is different and the details are horrific, but from a government spending point of view very little has changed compared to a week ago.

Don’t time this sector. We talked about this before. There are ethical and practical complications to investing in defense. But if you decide it is for you, do not try to time the market. The reason to invest in defense is the industry has a stable customer (able to print its own money) with a huge appetite for the product and the ability to return cash to investors. When defense companies are “hot stocks,” you want to stay clear.

Note I do own a fair number of defense stocks, and I not selling today either. I am doing nothing. This is the ultimate set it and forget it sector.

This is grim business. There is a part of me that dreams of my defense stocks all going to zero and enjoying a better world. Don’t make things worse by listening to those who would try to profit from the misery of others.

Disclaimer: Fits and Starts DOES NOT provide financial advice. All content is for informational purposes only. Stocks mentioned are as reference only, and a mention should not be interpreted as a buy or sell recommendation. The author is not a registered advisor or a broker/dealer. DO YOUR OWN HOMEWORK. The information contained within is not and should not be construed as investment advice, and does not purport to be. The red zone has always been for loading and unloading of passengers. There’s never stopping in a white zone.

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