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Wars from Syria to Ukraine Send U.S. Defense Stocks to Record Highs

By Richard Clough, Bloomberg

Led by Lockheed Martin Corp. (LMT), the biggest U.S. defense companies are trading at recordprices as shareholders reap rewards from escalating military conflicts around the world.

Investors see rising sales for makers of missiles, drones and other weapons as the U.S. hits Islamic State fighters in Syria and Iraq, said Jack Ablin, chief investment officer at Chicago-based BMO Private Bank. President Barack Obama approved open-ended airstrikes this month while ruling out ground combat.

“As we ramp up our military muscle in the Mideast, there’s a sense that demand for military equipment and weaponry will likely rise,” said Ablin, who oversees $66 billion including Northrop Grumman Corp. (NOC) and Boeing Co. (BA) shares. “To the extent we can shift away from relying on troops and rely more heavily on equipment — that could present an opportunity.”

Bombardments of Islamic State strongholds added to tensions this year that include U.S.-led sanctions on Russia for backing Ukrainian rebels and China’s feuds with neighbors over disputed South China Sea islands. The U.S. also is the biggest foreign military supplier to Israel, which waged a 50-day offensive against the Hamas Islamic movement in the Gaza Strip.

A Bloomberg Intelligence gauge of the four largest Pentagon contractors — excluding Boeing, whose civilian airplanes business is larger than its military unit — rose 19 percent this year through yesterday, outstripping the 2.2 percent gain for the Standard & Poor’s 500 Industrials Index.