On Mar 16, President Trump unveiled the Pentagon's fiscal 2018 (FY 2018) budget proposal intended at providing the required funding to ramp up the fight against the Islamic State of Iraq and Syria (ISIS), enhance troop readiness, and build new ships and planes.

Highlights of the Budget Request

The President’s fiscal 2018 budget requested $639 billion in funding for the Pentagon, an increase of $52 billion from 2017 level of $587 billion. The budget includes $574 billion for the base budget, a 10% increase from the 2017 annualized CR level, and $65 billion for Overseas Contingency Operations.

The proposal reflects a total increase of $54 billion − $52 billion to the Department of Defense (“DoD”) and $2 billion to other national defense programs outside DoD. This raise marks the biggest DoD hike since President Reagan. If enacted, this budget would repeal President Obama’s eight-year cuts in the defense budget.

The current proposal shows that Trump intends to keep his promise made during his pre-election campaign and early presidency. His assurance was regarding destroying ISIS, increasing the total number of ships in the U.S. Navy fleet and building more F-35 Joint Strike fighter jets to enlarge the Air Force. In addition, Trump had proposed a reduction in the overseas defense budget, so that the nation’s allies share more of the financial burden for security rather than only American taxpayers.

Earlier, Trump had revealed plans to expand the U.S. Army to 540,000 from the current 480,000 active-duty troops. Moreover, the addition of new submarines and Naval ships, and new Marine Corps battalions, were also part of the plan.

Among the priorities, the budget will seek a major boost in funding for the fight against the Islamic State, as part of its FY 2018 defense budget. This hints at a stepping up of U.S. military efforts. Additionally, it will include costs for rebuilding the U.S. Navy to increase the total number of ships in order to address the present and future threats.

Further, the proposed budget also seek to enhance spending in several key areas, including the Marine Corps so that it is ready to meet the challenges of the 21st Century, address urgent warfighting readiness needs and rebuild the U.S. Armed Forces.

Stocks to Consider

Thus, the gloomy days for the defense sector seem to be fading away. As far as the budget is concerned, the defense majors are expected to receive a vital tailwind. In this positive climate for defense spending, it would be a good decision to pick up aerospace and defense stocks that are likely to benefit from the situation. We would suggest the following names:

Lockheed Martin Corp. (LMT Quick QuoteLMT - Free Report)

The Pentagon’s prime contractor, Lockheed Martin, is the manufacturer of the defense department’s costliest program, the F-35 fighter jet. Though in the beginning of the year, Trump had a conflict with the defense company over the huge pricing of the jets, they settled on a deal later on. In fact, the budget also hints at an increase in Lockheed’s F-35 Joint Strike Fighter program.

Apart from the F-35 program, the company will probably be benefitted by the increased budget allocation for its other major programs like THAAD.

Lockheed Martin currently carries a Zacks Rank #3 (Hold) and has an expected long-term earnings growth rate of 5.80%. Moreover, the stock’s 2017 earnings estimates have increased by 0.2% in the last 30 days.

The Boeing Co. (BA Quick QuoteBA - Free Report)

In Dec 2016, Trump had tweeted that the U.S. Army will consider purchasing more Boeing F/A-18s instead of buying the expensive Lockheed Martin F-35 fighter jets. Also, the President  hinted at a big order win for Boeing. Hence, an increase in defense spending would likely result in a higher budget allocation for Boeing’s fighter jets.

The company currently carries a Zacks Rank #3 and has an expected long-term earnings growth rate of 13%. Further, the stock’s 2017 earnings estimates have increased by 0.4% in the last 30 days.

Huntington Ingalls Industries, Inc. (HII Quick QuoteHII - Free Report)

One of the prime beneficiaries of this new spending proposal will be Huntington Ingalls. For more than 100 years, this company has been building ships, aircraft carriers and submarines for the U.S. Navy at their shipyards in Virginia and Mississippi. The new plan emphasizes the need to expand Navy’s fleet to 350 vessels from 272 current fleets. Additional surface ships and submarines would benefit the company

Huntington Ingalls sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Ingalls has an expected long-term earnings growth rate of 15%. The stock’s 2017 earnings estimates have increased by 3.9% in the last 30 days.

General Dynamics Corporation (GD Quick QuoteGD - Free Report)

Apart from Huntington Ingalls, General Dynamics owns shipyards and have the resources that are required to meet the growing need for naval properties. In fact, it has a large market cap compared with Huntington Ingalls. Still, the budget calls for increases in Army and Marine Corps that would benefit military vehicle builders like General Dynamics, BAE Systems Plc (BAESY Quick QuoteBAESY - Free Report) and Raytheon Company .

The company carries a Zacks Rank #3 and has an expected long-term earnings growth rate of 8.50%.

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