U.S. equities appear unstoppable. The tech-heavy Nasdaq has rallied a whopping 21% on a year-to-date (YTD) basis, while its counterpart, the S&P500 is up 15.4%. Positive macroeconomic news is partially responsible. Last week, investors were treated to the May consumer price index report that came in lower than expected, as well as a report that highlighted falling producer prices, a measure of wholesale inflation. Inflation finally ticking downward is positive for both consumers and investors.
From a markets standpoint, cooling prices increases the possibility of a Federal Reserve rate cut, which would be positive for the overall economy as well as stocks.
Defense stocks in particular have enjoyed a broad rally as geopolitics and ongoing conflicts from the Middle East to Eastern Europe generate demand for weapons and other kinds of military equipment. Unfortunately, not every defense stock is doing well. Below are three defense stocks to sell.
Boeing (BA)
The plane-maker Boeing (NYSE:BA) has made a few of my “sell” lists in 2024. The firm’s share price has fallen nearly 30% since the start of the year and does not seem like it will recover. Bad publicity regarding the manufacturing quality of Boeing’s 737 MAX airplanes has facilitated a lot of dissatisfaction amongst investors and fliers. The controversy all started in January when the emergency door of an Alaska Airlines 737 MAX plane blew out mid-flight. That incident made national news and prompted a Federal Aviation Administration (FAA) investigation into Boeing’s manufacturing quality controls (or lack thereof).
The problems for Boeing do not stop there. The plane-maker announced a few days ago it had begun an investigation into the manufacturing quality of some undelivered 787 Dreamliner jets. These jets are used for long-haul, international flights and remain in high demand. According to Reuters, Boeing is investigating “hundreds of fasteners” that had been incorrectly installed on the fuselages of several jets.
With Boeing’s shares in the tank and no recovery in sight, investors should definitely stay away as BA is definitely one of the defense stocks to sell right now.
Northrup Grumman (NOC)
Northrup Grumman (NYSE:NOC) designs and manufactures various aeronautical systems, including drones and missile defense systems. The October 7th attacks on Israel and the war in Gaza that would precipitate afterwards led to a significant jump in Northup Grumman’s share price as well those of other defense contractors.
However, the firm still ended 2023 down 13%, despite the rally towards the backend of the year. The burgeoning costs of Northrop’s B-21 stealth bomber program did not inspire much confidence in investors. In the current year, Northrup Grumman has continued to deliver less-than-stellar performance. Shares have fallen 8.6% on a YTD basis.
The defense contractor reported Q1 earnings for fiscal year 2024, and financial figures beat Wall Street estimates. Revenue grew 9% on a year-over-year (YOY) basis to $10.1 billion. However, Northrop announced its multi-billion-dollar satellite program with the U.S. Air Force had been canceled.
Cost overruns in current programs and cancellations of lucrative government contracts make NOC hard to keep in one’s portfolio.
Mercury Systems (MRCY)
Mercury Systems (NASDAQ:MRCY) is the final company to make this list of top defense stocks to sell this summer. Unlike the other entries, Mercury does not manufacture a major final product, like an aircraft or missile defense system. Rather, the company designs and sells individual components that go into various weapons and aircraft systems. That includes power amplifiers and limiters, switches, oscillators, digital and analog converters, integrated circuits and memory and storage devices.
While Mercury sells indispensable products, the company has struggled with growing revenue and earnings in recent quarters. In particular, Mercury’s Q3 earnings report for fiscal year 2024 saw revenue decrease 21% YOY to $208.3 million, while the company’s bottom-line slipped into the red net loss territory at negative $44.6 million.
Mercury’s share price has fallen 22% YTD, making it another one of the defense stocks investors should consider selling.
On the date of publication, Tyrik Torres did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.