So, a recent article on Investopedia starts off warning of a possible bubble in defense stocks (eg. LMT, RTN, etc). Throws out some scary lines about the dot-com bubble, etc. (different industry, right?). But strangely, ends the article with 3 points about how investors should react, with 2 of those 3 points being bullish in nature, not bearish. So is the headline just click-bate or confusion? (I am actually being a bit cheeky– I like the article; it does us a favor by giving some counter points to the main argument).
The three points:
It’s bubble time, take profits (well, ok, that’s helpful). I am not in agreement.
Refers to Zacks Research being bullish:
“…with the United States being the largest [worldwide] supplier of defense equipment, it is undoubtedly a golden era for U.S. aerospace and defense stocks.” 
Again refers to Zacks being bullish:
“…Widespread geopolitical tensions that are prompting nations, both developed as well as developing, to rapidly expand their arsenal should keep the outlook for the U.S. aerospace and defense stocks favorable.” 
It’s always important to keep an eye on general market conditions and factors. I am by no means a debt expert, so I cannot give a proper signal on this, but it is interesting to note a few things:
Main area/cause of 2008 crisis was high household and financial debt levels.
But now, in 2018, household debt levels are below what they were then in 2007.
Now, take a look at this chart from Blackrock Investment Institute. The big takeaway– US Government debt has ballooned from 52% of GDP in 2007 to 94% of GDP in 2018. 
What can this mean?
“Debt can improve the standard of living in a country by allowing the government to build new roads, improve education and job training and provide pensions. Budget deficits are critical to help make up for lower investment and private spending during an economic recession.
Too much government borrowing can cause economic problems by driving interest rates up and causing inflation.” 
M&A positive signal: With the U.S. Department of Justice now approving Cigna’s acquisition of Express Scripts (should be completed end of 2018), investors sitting/waiting on the CVS-Aetna deal have reason to smile:
“The Cigna decision bodes well for rivals CVS Health and Aetna, in terms of their bid to become an integrated PBM and health insurer.” 
We already know from previous media reports that things are looking good for DOJ approval of the deal and a current CNBC article sums it up nicely:
“CVS (CVS) and Aetna (AET) have expressed confidence that they will receive anti-trust clearance and close the deal by year’s end. Reuters reports that a source [familiar] with matter said a decision in their merger could come by the end of this month.” 
Arbitrage notes: There is still a positive (yet small) price gap in the CVS-AET deal. As of today, with AET at $205/sh and CVS at $78, if you factor in the deal terms, it’s about a 2.6% basic return. If they can pull it off within 3 months, that’s roughly 11% annualized.
For a contrarian view of this arbitrage play, check out this pretty good article at Investor Place from Sept. 11: