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Investment banker Citigroup made the case last month for buying Huntington Ingalls (NYSE: HII) stock as a cheap way to invest in defense. Today, investors are finally getting the memo, and bidding up Huntington Ingalls stock a strong 10.5% (through 10:35 a.m. ET).
What's the catalyst today? None other than statements from President Donald Trump himself.
In his address to Congress last night, POTUS laid out a plan to "resurrect the American shipbuilding industry, including commercial shipbuilding and military shipbuilding." That seems music to HII investors' ears, and now they're buying this defense stock hand over fist.
Great news for Huntington Ingalls?
Putting just a bit of meat on the bones of his new policy, the president said he's forming "a new office of shipbuilding in the White House," and will ask for "special tax incentives to bring this industry home to America." He's promising a "huge impact" from the new policy, presumably on American industry and employment, but also perhaps on the stocks of major shipbuilding firms such as Huntington Ingalls if things come to fruition.
In related news, The Wall Street Journal reports the administration will use revenue from new fees imposed on Chinese-built ships entering American ports, to fund "special tax incentives" for U.S. shipbuilders.
In further evidence that this project already has momentum, we learned the new office of shipbuilding already has Capt. Jerry Hendrix, a longtime advocate of rebuilding America's military and civilian fleets, on board as a "senior counselor."
What this could mean for Huntington Ingalls stock
It remains to be seen what this will mean, precisely, for HII stock, but initial indications are good.
Meanwhile, Huntington Ingalls remains attractively priced at just over 12 times trailing earnings, and at an historically cheap 0.6 times trailing sales. With long-term earnings growth already expected to average 11% annually before any support from the office of shipbuilding is factored in, and with HII stock paying a generous 3.1% dividend yield besides, I think it's a pretty safe bet, if you want to bet on something substantive coming out of this new initiative.
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