Buy these four S&P 500 index blue chip stocks and chill

The S&P 500 index and its accompanying ETFs like SPY and IVV have done well over the years. It has jumped from $670 during the Global Financial Crisis (GFC) in 2009 to over $4,400 today. Data shows that $10,000 invested in the fund in January 2010 would be over $5,000 today.

Defense contractors beat the S&P 500

The S&P 500 is made up of incredible companies like Apple, Microsoft, Nvidia, Tesla, and Alphabet. All these firms have a strong market share in their respective industries and have the potential to grow in the next few years. 

Many big-cap tech companies have outperformed the S&P 500 index in the past decade as they have grown their share and cash generation. Defense contractors are other firms that have crashed the index, as shown below. 

The US and other countries have spent trillions of dollars in the past decade yet the world is not safer. Indeed, analysts believe that the world will get less safe, with Ray Dalio predicting a World War 3. Russia’s war in Ukraine will last for more years while the Israel and Hamas fight could go on for a few months.

Watch here: https://www.youtube.com/embed/1Y5z1OCb1KM?feature=oembed

The biggest battle will be China’s invasion of Taiwan in the next few years. Analysts expect this invasion will happen in 2027 when Beijing completes its modernisation plans. There are other less-talked-about wars such as the one happening in Kazakhstan. A war in the Korean peninsula cannot be ruled out.

The implications of all this is that countries will continue boosting their defense budget in the coming years. The US has pushed its annual spending to over $830 billion and it will reach $1 trillion soon. Its European allies and companies like South Korea, Australia, Japan, and the Philippines are also doing the same.

Military Industrial Complex stocks

The biggest beneficiaries of an unstable world are the Military Industrial Complex companies. These firms have order backlogs worth hundreds of billions of dollars and are working at full capacity.

Most importantly, their power in Washington has grown, thanks to the massive consolidation in the industry. As such, while these companies regularly compete for contracts, they are usually partners in the process. This means that they can work together to boost contract prices.

In other words, these companies have learned to co-exist in the contracting industry. Also, they have become highly profitable and this trend could continue as inflation starts coming down. Further,

There are several defense contractors in the US. As the above chart shows, these companies – except RTX – have a long record of beating the S&P 500 index. I believe that many of them, General Dynamics (GD), Northrop Grumman (NOC), Lockheed Martin (LMT), and TransDigm Group (TDG) will continue doing well over time.

Interestingly, these firms are reasonably valued with all of them having a forward PE multiple of less than 20 and a forward EV to EBITDA ratio of less than 17. This likely explains why many politicians in Congress have invested heavily in these defense contractors.

JUST IN: Another US Congressman has ONCE AGAIN bought war stocks before the Israel and Palestine conflict.

Representative Josh Gottheimer purchased up to $15,000 of Northrop Grumman Corp, $NOC, on Sept 26.

He sits on the National Security Agency and Intelligence Committees.

— unusual_whales (@unusual_whales) October 16, 2023

Therefore, I believe that investing in defense contractors like RTX, GD, NOC, LMT, and TransDigm makes sense. However, you should always have a diversified portfolio across different sectors to hedge risks. That’s why I have always made the case for investing in quality ETFs like MOAT and COWZ.

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