Is Northrop Grumman (NOC) a good defense stock to buy?

Northrop Grumman (NYSE: NOC) stock price staged a strong recovery this week after Joe Biden signed into law the $96 billion aid package for Israel, Ukraine, and Taiwan. It also rebounded after the firm announced earnings that were moderately better than expected. It rallied to $488, its highest level since October last year.

Northrop Grumman is one of the least-covered companies in the military-industrial complex. Instead, most people focus on well-known names like Lockheed Martin, Boeing, and RTX, formerly known as Raytheon.

Yet, Northrop is one of the most important companies in the industry. It is a diversified entity that manufactures items that are useful for the US defense industry. Some of its key products are its B-2 Spirit stealth bomber, Pegasus launch vehicle, radar systems, and ships.

Therefore, the company is one of the biggest beneficiaries of the ongoing geopolitical issues around the world. Russia is still expanding in Ukraine while the crisis in the Middle East could escalate. 

The biggest threat of all is the potential China’s invasion of Taiwan, which is expected to happen in the next few years. As such, defense spending by the US and other allied countries is expected to increase.

Northrop Grumman is already benefiting from these crises. Results published this week showed that its Q1 backlog jumped to $79 billion as its total sales jumped by 9% to $10.1 billion.

Most of this growth came from its aeronautics systems business whose revenue jumped by 18%. Its defense, mission, and space systems revenues rose by 3%, 4%, and 9%, respectively. 

Northrop Grumman expects that its revenue for the year will be between $40.8 billion and $41.2 billion. That will be a significant increase from last year’s $39.2 billion and the $33 billion it made in 2019.

It is also returning substantial sums of money to investors. It spent $1.5 billion in share buybacks and dividends in the first quarter and the trend will continue. In the past five years, the number of outstanding shares has dropped from over 169 million to 150 million. 

Northrop Grumman is often seen as a good investment because of the growing defense spending and its role a contractor. Its total returns in the past decade stood at over 383%, beating other companies like General Dynamics, RTX, and Lockheed Martin.

NOC chart by TradingView

Turning to the weekly chart, we see that the NOC share price has made a strong comeback in the past few days. It has rebounded and moved to the crucial resistance point at $491.68, its highest swing on October 16th.

The stock has remained slightly above the 50-week and 100-week Exponential Moving Averages (EMA). Similarly, the Relative Strength Index (RSI) has pointed upwards and moved above the neutral point of 50.

Therefore, the most likely scenario is where the stock bounces back and retests the crucial resistance at $542, its highest point this year.

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