Seasonal Signal: Avoid This Defense Stock In November

In case you didn't hear, there was a blue tsunami last night at the polls. AI infrastructure stocks and the defense sector are about the only areas on Wall Street in the red, the latter in focus with geopolitical conflicts overseas now in the crosshairs. This spells trouble for one defense stock in particular; Northrop Grumman Corp (NYSE:NOC).

November is a historically lackluster month for NOC. Per Schaeffer’s Senior Quantitative Analyst Rocky White, the stock is one of the 25 worst stocks to own in November on the S&P 500 Index (SPX) in the last 10 years. The stock averages a 0.6% return next month, historically, with only a 40% monthly win rate. L3harris Technologies (LHX) is the only other defense contractor that appears on the list.

Northrop stock is down 4.5% to trade at $525.78, heading for a fourth-straight loss and worst single-session decline since June. The shares were turned away at a trendline connecting the March 3 record high of $774. Year to date, NOC is now off by 7.7%.

With 15 of the 25 brokerages in coverage maintaining "strong buy" ratings and only one "sell" on the books, another lackluster November could prompt a shift from the analyst community. Echoing this, the stock's 12-month consensus price target of $640.23 is a 21.8% premium from its current perch.

Options traders are more bullish than usual. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), NOC sports a 10-day call/put volume ratio of 3.04 ranks in the 93rd percentile of its annual range.

The good news for options traders is the stock tends to outperform options traders' volatility expectations as well, per its Schaeffer's Volatility Scorecard (SVS) of 98 out of 100.