Northrop Grumman is Wednesday's IBD Stock Of The Day as NOC stock sets up for a buying opportunity and outperforms other defense contractors in one of the market's top-tier groups.
Defense stocks surged after Russia's Feb. 24 invasion of Ukraine, which is seen by some as the dawn of a new Cold War — and a new era of elevated defense spending for the U.S. and its allies, especially in Europe. Subsequently, analysts declared Northop Grumman to be the biggest winner in President Joe Biden's $773-billion fiscal 2023 budget request for the Pentagon.
On Northrop's April 28 first-quarter earnings call, CEO Kathy Warden said the budget request fully funds initial production of the B-21 Raider stealth bomber. Biden's defense budget plan also includes a "significant year-over-year increase in development funding" for a new intercontinental ballistic missile known as the Ground Based Strategic Deterrent.
The Air Force plans to spend $20 billion for B-21 production over five years. In 2020, Northrop received a $13.3-billion contract to develop the new ICBM.
While Northrop's revenue and EPS have trended lower in recent quarters, those and other programs are expected to fuel growth in 2023 and beyond.
On Tuesday, ahead of today's annual shareholder meeting, Northrop announced a 10% increase in its quarterly dividend, to $1.73. That makes 19 straight years of higher dividends.
NOC Stock
NOC stock fell nearly 1% to 454.87 in Wednesday stock market action, largely due to the broad, sharp market sell-off.
After finding support at its 50-day and 10-week moving average last week, NOC stock has rallied past the key technical level this week.
After surging to an intraday high 490.82 on March 7, Northrop Grumman stock has been carving out a cup-with-handle pattern. The 477.26 handle peak came on April 8, according to MarketSmith analysis. The official buy point is 10 cents above the handle high.
However, investors can watch for potential earlier buying opportunities. NOC stock has a downsloping trendline that connects the March 7 high, the April 8 handle high and the 470.23 high on May 5. Breaking above that level would provide an early entry of around 465. Investors also could use 470.33, just above the May 5 high, as another alternate entry.
NOC Holds Up Better Than Most
While NOC stock held up well in Wednesday's sharp market sell-off, the overall action should give investors pause. Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trends and what they mean for your trading decisions.
Northrop's relative strength line, the blue line in IBD charts that tracks a stock's performance vs. the S&P 500, has climbed to a two-year high, reinforcing its market leadership position.
Among the big defense contractors, NOC stock is the only one that has held support at its 50-day line. Raytheon, Lockheed Martin and General Dynamics are looking to retake that technical level. The RS lines for these defense giants are at or near 52-week highs.
