Geopolitical risks stemming from the Middle East is pushing oil prices higher and subsequently, defense stocks are also seeing some upside. In particular, the Direxion Daily Aerospace & Defense Bull 3X Shares ETF (DFEN) is pushing higher and could keep doing so as long as geopolitical risks remain elevated.
The fund is up 12% within the past year though it has retreated recently, following the broader stock market dip to start the second quarter. This could give traders an opportune time for a point of entry while the situation in the Middle East plays itself out.
Per its baseline fund description, DFEN seeks daily investment results equal to 300% of the daily performance of the Dow Jones U.S. Select Aerospace & Defense Index. The Dow Jones U.S. Select Aerospace & Defense Index (DJSASDT). The Index attempts to measure the performance of the aerospace and defense industry of the U.S. equity market. Aerospace companies include manufacturers, assemblers and distributors of aircraft and aircraft parts. Defense companies include producers of components and equipment for the defense industry, such as military aircraft, radar equipment and weapons. The extra 300% exposure allows traders to maximize profits if their bullish notions prove correct.
Lockheed Martin Performance is Key
A closer look at DFEN’s top holdings reveals the inclusion of defense company Lockheed Martin. As mentioned, geopolitical risks could keep investors interested in defense stocks like Lockheed Martin, feeding into more strength for DFEN.
The company just won a key government contract, which should give the stock a push higher. So far, the stock has risen 4% within the past month as Middle East tensions started to escalate further.
“Lockheed Martin has won a $17 billion contract to develop the next generation of interceptors to defend the United States against an intercontinental ballistic missile attack, the U.S. Missile Defense Agency said,” according to a Yahoo! Finance report. “The interceptor program is aimed at defeating current ballistic missile threats and future technological advances from countries such as North Korea and Iran.”
Global investment firms like JP Morgan are also bullish on defenses stocks like Lockheed Martin. JP Morgan analyst Seth Seifman recently upgraded the stock from “hold” to “buy.”
“What we can say is that it’s a dangerous world and while that is not a sufficient condition for defense stocks to outperform,” he said, “it is a potential source of support, especially when they are under-owned.”
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