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Defense Stock Set for a Booming First Quarter

Options traders are pricing in relatively low volatility expectations for HII

Managing Editor
Jan 2, 2020 at 1:54 PM
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The world's largest military shipbuilding name Huntington Ingalls Industries Inc (NYSE:HII) is up 0.9% this afternoon, trading at $252.69, at last check. The defense outperformer has surged 31% over the past 12 months, with a recent leg of support forming at the 40-day moving average and $250 level. Plus, data from Schaeffer's Senior Quantitative Analyst Rocky White suggests the first quarter of 2020 could be even better for HII. 

Per White, data shows that Huntington Ingalls stock has averaged a gain of 5.91% in the first quarter over the past 10 years, and has finished the three-month period in positive territory all 10 times.The equity even outranks FAANG giant Netflix (NFLX), which yields a 90% positive return rate.

Daily Stock Chart HII

Looking at analyst data on the stock, the eight covering firms are evenly split between "strong buy" and a "hold" or worse rating. HII's average 12-month price target of $267.62 does come in elevated, however, 5.7% above current trading levels.

Now looks to be an attractive time to bet on the equity's next move with options. This is per its Schaeffer's Volatility Index (SVI) of 19%, which sits in the 6th percentile of its annual range. In simpler terms, options players are pricing in relatively low volatility expectations right now.

 

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