Defense Stocks To Buy
The U.S. is sending weapons such as the Lockheed Martin (LMT) Javelin anti-tank missiles and Raytheon (RTX) Stinger air-defense systems. They also include Stryker eight-wheeled armored vehicles, built by General Dynamics (GD).
defense stocks to buy
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Boeing (BA) is known for its commercial jets and it's also a major player in the defense sector. Defense revenue totaled $23.16 billion in 2022, roughly 35% of Boeing's overall revenue.
BA stock earns an IBD Composite Rating of 67, EPS Rating of 25 and RS Rating of 91, all out of a best-possible 99. A 91 RS Rating means that Boeing has outperformed 91% of all stocks in IBD's database over the past year.
The relative strength line for this top defense stock rose through early January to a new high, according to MarketSmith analysis. A rising RS line shows that a stock is outperforming the S&P 500 index. That strength indicator has pulled back a bit since, and BA stock is now just below the 50-day moving average.
HEI stock carries a Composite Rating of 91, EPS Rating of 88 and RS Rating of 84. The defense stock cleared a 165.89 flat-base buy point Jan. 23. It closed just below the entry Feb. 28, after an earnings tumble.
Russia's invasion of Ukraine has, among other things, unsettled much of the stock market. However, one corner of the market has experienced a lift as a result, and stands to keep benefiting should this conflict continue or other geopolitical risks rise: defense stocks.
In addition to these catalysts, defense stocks might be even more compelling in the face of a possible economic slowdown as the Federal Reserve kicks off its first rate-hiking cycle in years. Unlike other areas of the market, the defense industry has a steady and reliable revenue source in the U.S. government.
Vectrus mainly operates as a prime defense contractor ̶ not subcontractor ̶ meaning it works directly with the government on a contractual basis. Looking at its client base, the U.S. Army, Air Force and Navy are its main customers and comprised about 91% of VEC's total revenue in 2021.
Boeing (BA (opens in new tab), $193.80) has had a rough few years. The aerospace and defense company's 737 MAX aircraft was grounded in March 2019 for 20 months due to two crashes. Meanwhile, the pandemic hit the airline industry, affecting both its narrow and wide-body aircraft orders. More recently, shares of the Dow Jones stock have been hit by broad-market headwinds.
As for Boeing's defense business, the analyst expects this to keep pace with gross domestic product (GDP) growth. He says that BA's competitive advantage includes its strong relationships with U.S. defense contractors and "deep knowledge of esoteric contracting rules." Boeing has been making presidential aircraft since the FDR administration.
The vast majority of Wall Street analysts agree that the blue chip is one of the best defense stocks out there. Of the 23 pros following the name that are tracked by S&P Global Market Intelligence, 12 say it's a Strong Buy and five call it a Buy. This compares to four that have it at Hold and two that believe it's a Strong Sell.
Raytheon Technologies (RTX (opens in new tab), $101.08) is one of the largest defense stocks in the world. The company's suite of products include aircraft engines, guided missiles, satellites, drones, land warfare systems, torpedoes, air traffic control systems, radars and many others.
In April 2020, Raytheon merged with United Technologies to form an aerospace and defense "powerhouse" with both sides of the business being fairly equally weighted, which is unique in the industry, according to Morningstar. Typically, industry players heavily tilt towards one or the other. Both sides of Raytheon's business also enjoy a "wide moat" that makes it hard to mount a challenge.
RTX has plenty of growth opportunities on the horizon. In July 2021, the company was awarded an initial $2 billion contract to develop nuclear cruise missiles, with total take-home value expected to reach $10 billion over time. The Long-Range Standoff Weapon (LRSO) program aims to develop state-of-the-art radar-evading stealth technology that can overcome complex air defenses.
As for defense, Arment says 54% of Raytheon's revenue is tied to defense or government-related end markets, which are returning to growth albeit in the low single-digit compound annual growth rate for the next few years.
Moog (MOG.A (opens in new tab), $89.47) designs advanced motion control products for the aerospace, defense, industrial and medical markets. Its solutions provide such things as precise missile steering (defense), flight control (commercial aerospace) and components and systems for satellites and launch vehicles (space).
However, one area that bears watching is the defense aftermarket business. Moog said revenues would increase 6% year-over-year in fiscal 2022 but the pace of annual revenue growth would remain below fiscal 2020's level, the analyst says.
AAR Corp. (AIR (opens in new tab), $48.21) is the first of two Strong Buy-rated defense stocks on this list. AIR is the largest independent provider of aircraft maintenance, repair and overhaul services in North America, serving both commercial and government clients. The company's goal is to help reduce aircraft operating costs and enhance flight safety. AAR also makes mobile tactical shelter systems used in military and other missions.
Ducommun also is sharpening its business strategy to more evenly balance its defense and commercial aerospace business, focus on higher-margin solutions, and invest in organic growth and acquisitions.
Benjamin Graham, who is widely known as "the father of value investing," argued that defensive stocks should be moderately priced, have a good record of paying dividends and be conservatively financed.
In addition, the Dow stock is very inexpensive at just 12 times earnings projected for this year. Combined with its strong free cash flow and its high dividend yield, investors should consider PFE as one of the best defensive stocks going forward.
As a result, investors can continue to expect that Coca-Cola will keep raising its dividend as it has for the past 60 years straight. That is quite an achievement, and is likely one reason why KO is one of Warren Buffett's favorite stocks. The famed value investor and CEO of Berkshire Hathaway (BRK.A (opens in new tab)) has held shares in the company for almost 35 years, since 1988. Berkshire's stake in KO stock is now up to 9.25%, according to Coca-Cola's latest proxy.
Given that KO is at just 27 times this year's earnings and 23 times next year's earnings, it looks moderately priced, given its growth. Along with its 3% yield, KO is one of the best defensive stocks to buy.
What's more, XOM is one of the best value stocks at the moment, trading at just 9.9 times forward earnings. Moreover, Exxon has grown its dividend every year over the past 20 years, and its 3.5% dividend yield is more than covered by expected cash flow going forward. These points make XOM stock one of the best defensive stocks for investors right now.
I don't typically discuss defense companies, but the segment has grown to about 10% of my portfolio holdings. The five defense stocks I own are Lockheed Martin (LMT), General Dynamics (GD), Raytheon (RTX), Northrop Grumman (NOC), and Spirit AeroSystems (SPR). Each of these companies is appealing for its unique reasons. Still, they also have a significant bullish factor that should contribute to higher revenue growth and substantially higher-than-expected profitability in future years. Therefore, the stocks of these top defense companies should appreciate considerably as we advance.
The U.S. government spends far more on defense than any other country, awarding contracts worth hundreds of millions of dollars to American companies that manufacture military technology and equipment.
In fiscal year 2021, the United States spent roughly $800 billion on defense. This amount was more than the defense spending of China, India, the UK, Russia, France, Germany, Saudi Arabia, Japan, and South Korea combined.
With its budget proposals, the White House publishes its priorities for using the funds it requests. These priorities can provide insight into how the government will direct the money it allocates to defense and other programs.
Raytheon is another company with a long history of government collaboration. Like Lockheed, Raytheon provides a variety of aerospace and other defense products to the U.S. military and government. Raytheon also has commercial customers such as passenger airlines.
The defense industry is unique compared to other industries. Companies heavily involved in defense draw a large portion of their revenues from government spending rather than from sales to the general public or other businesses.
That could make defense contractors an appealing opportunity for investors worried about the potential of an oncoming recession. That, combined with the U.S. committing to support Ukraine in its war against Russia, could offer additional growth opportunities for defense companies.
Defense stocks are typically less volatile than other businesses due to the relative stability of government spending. Given the uncertainty about the economy's future, investors will likely find that stability appealing.
Following the terribly disruptive invasion of Ukraine by Russian military forces, the subsequent resistance effort has been both extraordinary and inspiring. Unfortunately, it also means that the conflict will likely drag on, translating to upside potential for two defense stocks, RTX and AVAV.
In an action that the world community neither needed nor desired, Russia nevertheless made the dangerously unsettling decision to invade neighboring Ukraine earlier this year. In doing so, the terrifying action solidified Ukrainian resolve and identity, leading to a remarkable fight for independence. Sadly, the Kremlin broadcasted no intention of backing down, thus cynically bolstering two defense stocks to buy in particular, RTX and AVAV. 041b061a72