Top 7 Defense Stocks to Profit From Rising Hostilities
With regional conflicts such as in Ukraine, having exploded into a much larger war in the past, here’s how investors can position their portfolios to profit from the rising hostilities.
Ever since Russia invaded Ukraine in late February, the world has been on edge. Countries worldwide are increasing military spending to fortify their positions in the case of a worst-case scenario while seemingly picking sides via economic and diplomatic measures. The weapon manufacturers, aka defense companies, are the primary beneficiaries of weapon build-ups.
Below are seven companies that investors should consider if they want to add exposure to defense stocks.
1. Lockheed Martin (LMT)
No single piece of weaponry has been more effective for Ukrainian soldiers in their fight with Russia than the Javelin anti-tank missile, which is produced by Lockheed Martin (NYSE: LMT). Countries around the world have been shipping Javelins to Ukraine, which has stymied Russian advances by using the weapons to destroy key vehicles and disrupt supply lines and troop movement.
Lockheed is the manufacturer of the F-35, the most advanced fighter jet in operation. With 25% of its revenue derived from outside the U.S., the company is well equipped to supply global demand for weaponry. In addition to small arms, Lockheed Martin has its hands in several sub-sectors of the defense industry, including aeronautics, mission systems and space equipment.
Lockheed Martin closed today’s trading session at $428.85 per share, down 0.27% on the day. YTD LMT stock is up 21.02%.
2. Northrop Grumman (NOC)
Northrop Grumman (NYSE: NOC) has been on a tear since Russia invaded Ukraine; the stock is up nearly 20% in that time, while the broader market has been selling off. Despite the company posting mixed earnings results, this investor sentiment comes, where they missed revenue but beat EPS.
Northrop Grumman has its irons in multiple fires, including a contract with the U.S. for a deep space radar and a contract to supply 80-100 next-generation B-21 stealth bombers. As the war in Ukraine rages on, look for Northrop Grumman to become increasingly involved with providing the weapons the world is stockpiling.
Northrop Grumman closed today at $470.31 per share, down 0.55% on the day. YTD NOC stock is up 21.99%.
3. Raytheon Technologies (RTX)
Another major supplier of equipment used in the Ukraine war is Raytheon Technologies (NYSE: RTX). The company manufactures the Stinger air-defense system, which Ukrainians heavily use to prevent Russia from gaining air superiority over the conflict area.
While Raytheon has interests outside of weapons manufacturing, including space exploration equipment, the bulk of its revenue comes from its defense division. After beating EPS expectations, the company is entering a strong position in the second half of 2022.
Raytheon closed Thursday’s trading session at $93.15 per share, down 0.27% on the day. YTD RTX stock is up 7.11%.
4. Axon Enterprise (AXON)
The first company on our list forgoes bombs and fighter jets to focus on conducted energy devices (CEDs). Axon Enterprise (NASDAQ: AXON) produces the well-known TASER brand, which has become synonymous with handheld CEDs. The company also offers various software suites to assist law enforcement in managing digital evidence.
Improving financials and bullish opinion on the overall market stand to drive the stock higher over the coming months. The stock has been negatively affected by the supply chain issues plaguing the world; the stock is down over 30% in 2022. However, the stock is up 22% in the last month, showing investor sentiment might have flipped.
Axon Enterprise closed trading Thursday at $124.10 per share, down 1.56% on the day. YTD AXON stock is down 18.82%.
5. Boeing (BA)
The 20s have been rough for Boeing (NYSE: BA). That might be putting it mildly. Even before COVID-19 brought most air travel to a near standstill in 2020, the company experienced a crisis of its own in the form of the 737 Max and its issues related to crashes in 2018 and 2019.
While the 737 Max issues have been overcome and the aircraft is back in the skies, that’s not why Boeing finds itself on this list. Instead, it’s Boeing’s defense division that stands to benefit from the global arms buildup. They manufacture the popular F/A-18 and F-15 fighter jets. The company recently received a $23 billion order to build additional F-15EX jets. After a few years of getting beaten down, Boeing appears to have a clear runway for takeoff.
Boeing last traded at $167.88 per share, down 0.62% on the day. YTD BA stock is down 19.23%.
6. General Dynamics (GD)
General Dynamics (NYSE: GD) started the year on a down note, like most companies. Supply chain issues affected their revenues, resulting in a YoY revenue decline. However, like other defense companies, the Russian invasion of Ukraine changed their fortunes, at least for a bit. After gaining over 10% in the days following the invasion, the stock has drifted lower and now sits just about where it was pre-invasion.
The softness in the share price might be an opportunity for investors, as the company has a number of positive projects in the works, including building the U.S. Navy’s next-generation submarine, the Columbia-class sub. The company also pays a decent dividend of $4.76 annually, a yield of just under 2%.
General Dynamics closed the day at $231.82 per share, up 0.48% on the day. YTD GD stock is up 11.74%.
7. RBC Bearings (ROLL)
It’s all in the name for RBC Bearings (NASDAQ: ROLL). The company produces various bearings for various industries, including aerospace and defense. RBC’s products can be found in everything from fighter jets to industrial manufacturing equipment, making them highly sought after in a supply-starved world.
The stock has gained over 20% in the last month alone, signalling investors are confident that the company will continue to outperform the market. However, the P/E of nearly 120 means that this company cannot be considered a value stock. Instead, it should be viewed as a speculative stock with some risk attached.
RBC Bearings closed trading today at $256.78 per share, up 1.56% on the day. YTD ROLL stock is up 25.32%.
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