In this article, we will discuss the 10 best defense stocks to buy amid escalating geopolitical tensions. If you want to explore similar stocks, you can also take a look at 5 Defense Stocks to Buy Amid Escalating Geopolitical Tensions.
The Global Aerospace and Defense Market
According to a report by The Business Research Company, the global aerospace & defense market size was valued at $700.3 billion in 2021 and is expected to reach $755 billion by the end of 2022, growing at an annual rate of 7.8%. By 2026, the global aerospace & defense market is expected to reach $1 trillion, growing at a compound annual growth rate of 8.5% over the forecasted period.
The War in Ukraine is Escalating: Russia’s Nuclear Threat
Russia’s invasion of Ukraine resulted in condemnation from the West. When the West sanctioned Russia, Russia retaliated by cutting off gas supplies to Europe, triggering an energy crisis in the region. Russia is not showing any signs of calling off its military attack on Ukraine and is, as a result, losing its allies. On September 21, Vladimir Putin called for a partial military mobilization to recruit up to 300,000 reservists that will help Russia’s armed forces to fight the war in Ukraine. In addition, Vladimir Putin also spoke about how the West is supporting Ukraine and is posing a threat to Russia. President Putin implicitly threatened the West that if Russian territory, where referendums are to be held, comes under attack, Russia will not hesitate to resort to potential nuclear warfare to protect its people and territory. The Russian president said that “this is not a bluff” and nations who are in talks of using nuclear power against Russia should be aware “that ‘prevailing winds’ can also blow in their direction”.
Defense stocks have been rallying ever since the war in Ukraine broke out, and with the situation worsening, these stocks are expected to only go higher as defense contractors such as The Boeing Company (NYSE:BA), Lockheed Martin Corporation (NYSE:LMT), and Northrop Grumman Corporation (NYSE:NOC) are flooded with orders to support Ukraine.
Photo by Kevin Schmid on Unsplash
Our Methodology
To determine the 10 best defense stocks to buy amid escalating geopolitical tensions, we reviewed the aerospace and defense industry and listed down the major players. We then narrowed down our selection to stocks that have positive market sentiment and are gaining in 2022. Along with each stock, we have mentioned the hedge fund sentiment, analyst ratings, and top shareholders. We have arranged these stocks in increasing order of their popularity among elite hedge funds.
10 Best Defense Stocks to Buy Amid Escalating Geopolitical Tensions
10. Curtiss-Wright Corporation (NYSE:CW)
Number of Hedge Fund Holders: 21
Curtiss-Wright Corporation (NYSE:CW) serves the aerospace & defense, general industrial, and power generation markets worldwide. On August 3, Curtiss-Wright Corporation (NYSE:CW) announced that it has secured contracts from the U.S. Navy to supply propulsion valves, pumps, and advanced control systems. These contracts were valued at $220 million. On September 6, Curtiss-Wright (NYSE:CW) secured another contract from the U.S. Navy to supply generators for its Columbia-class submarine.
This July, Truist analyst Michael Ciarmoli revised his price target on Curtiss-Wright Corporation (NYSE:CW) to $160 from $167 and maintained a Buy rating on the shares. As of September 23, Curtiss-Wright Corporation (NYSE:CW) has gained 13.75% over the past twelve months.
On September 14, Curtiss-Wright Corporation (NYSE:CW) declared a quarterly cash dividend of $0.19 per share. The dividend is payable on October 13 to shareholders of record on September 30. As of September 23, the stock is offering a forward dividend yield of 0.53% and the company has $203 million in free cash flows.
Insider Monkey spotted Curtiss-Wright Corporation (NYSE:CW) on 21 hedge fund portfolios at the end of Q2 2022. The total stakes of the hedge funds amounted to $177.5 million. This is compared to 22 positions in the preceding quarter with stakes worth $162.7 million.
As of June 30, Select Equity Group is the largest shareholder in Curtiss-Wright Corporation (NYSE:CW) with stakes worth $60 million.
Like The Boeing Company (NYSE:BA), Lockheed Martin Corporation (NYSE:LMT), and Northrop Grumman Corporation (NYSE:NOC), Curtiss-Wright Corporation (NYSE:CW) is a major defense contractor and is positioned to capture more market share as geopolitical tensions escalate.
9. Aerojet Rocketdyne Holdings Inc. (NYSE:AJRD)
Number of Hedge Fund Holders: 26
Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) is involved in the development and design of rocket, hypersonic, and electric propulsive systems. The company serves the space, defense, civil and commercial industries. As of September 23, the stock has gained 6.1% over the past six months.
On August 8, Aerojet Rocketdyne Holdings, Inc. (NYSE:ARJD) secured a five-year contract by Day & Zimmermann to deliver additional assemblies for the U.S. Army, of which 200,000 are expected to be delivered in the first year. On August 16, Aerojet Rocketdyne Holdings, Inc. (NYSEAJRD) opened its SCEPS manufacturing facility, the first in the U.S., where the company will design and manufacture next-generation torpedoes for the U.S. Navy.
Insider Monkey found 26 hedge funds bullish on Aerojet Rocketdyne Holdings Inc. (NYSE:AJRD) at the close of Q2 2022. The total stakes of these hedge funds amounted to $772 million. This is compared to 29 positions in the previous quarter with stakes worth $730 million.
As of June 30, Steel Partners is the most prominent investor in Aerojet Rocketdyne Holdings Inc. (NYSE:AJRD) and has stakes worth $160 million in the company.
8. Textron Inc. (NYSE:TXT)
Number of Hedge Fund Holders: 23
Textron Inc. ranks 8th in our list of the best defense stocks to buy. Textron is a leading aircraft developer and manufacturer based in Rhode Island. On September 13, Bernstein analyst Douglas Harned started coverage of Textron Inc. (NYSE:TXT) with a $74 price target and a Market Perform rating. Over the past three months, Textron Inc. (NYSE:TXT) has received 5 Buy ratings from Wall Street analysts and 3 Hold ratings.
On July 21, Textron Inc. (NYSE:TXT) announced that it has been awarded a contract from the U.S. Army to provide XM204 top attack munitions. The contract is valued at $354 million. The stock appears to be trading at bargain levels, making now an attractive entry point for investors to take up a stake in the company, as geopolitical tensions escalate. As of September 23, Textron Inc. (NYSE:TXT) is trading at a PE multiple of 16x and has free cash flows of $1 billion.
At the close of Q2 2022, 23 hedge funds disclosed ownership of stakes in Textron Inc. (NYSE:TXT). These funds held collective stakes of $787 million in the company.
As of June 30, Adage Capital Management owns more than 6 million shares of Textron Inc. (NYSE:TXT) and is the largest investor in the company. The investment covers 0.86% of the fund’s 13F portfolio.
7. L3Harris Technologies, Inc. (NASDAQ:LHX)
Number of Hedge Fund Holders: 34
L3Harris Technologies, Inc. (NASDAQ:LHX) is one of the major defense contractors in the U.S., that provides mission-critical systems, C6ISR systems, wireless equipment, and tactical radios among other products and services. On September 19, L3Harris Technologies, Inc. (NASDAQ:LHX) announced a strategic collaboration with Embraer SA (NYSE:ERJ), a leading Brazilian aerospace company, to develop and manufacture a next-generation tanker that will feature a tactical aerial refueling option.
On September 20, L3Harris Technologies, Inc. (NASDAQ:LHX) secured a $91.5 million contract from The Boeing Company (NYSE:BA) to provide mission-management processors for the T-7A Red Hawk.
On August 29, RBC Capital analyst Ken Herbert started coverage of L3Harris Technologies, Inc. (NASDAQ:LHX) with a $285 price target and an Outperform rating. As of September 23, L3Harris Technologies, Inc. (NASDAQ:LHX) has gained 5.4% year to date.
According to Insider Monkey’s database, 34 hedge funds were long L3Harris Technologies, Inc. (NASDAQ:LHX) at the end of Q2 2022. These funds held collective stakes of $791.5 million in the company. This is compared to 40 hedge funds in the previous quarter with stakes worth $703 million.
As of June 30, Diamond Hill Capital owns more than 1 million shares of L3Harris Technologies, Inc. (NASDAQ:LHX) and is the top shareholder in the company.
6. HEICO Corporation (NYSE:HEI)
Number of Hedge Fund Holders: 39
HEICO Corporation (NYSE:HEI) develops products for aircraft, spacecraft, defense equipment, medical equipment, and telecommunications systems. On August 29, HEICO Corporation (NYSE:HEI) announced earnings for the fiscal third quarter of 2022. The company reported sales of $569.5 million, up 20% year over year, and ahead of market consensus by $14 million.
Wall Street is bullish on HEICO Corporation (NYSE:HEI). This August, Baird analyst Peter Arment reiterated an Outperform rating on HEICO Corporation (NYSE:HEI) and raised his price target on the stock to $186 from $160. This September, Jefferies analyst Sheila Kahyaoglu upgraded HEICO Corporation (NYSE:HEI) to Buy from Hold and raised her price target on the stock to $180 from $160.
As of September 23, HEICO Corporation (NYSE:HEI) has returned 9.7% to investors over the past twelve months.
At the close of the second quarter of 2022, 39 hedge funds disclosed ownership of stakes in HEICO Corporation (NYSE:HEI). The total value of these stakes amounted to $601 million.
As of June 30, Fisher Asset Management is the leading shareholder in HEICO Corporation (NYSE:HEI) with stakes worth $86 million. The investment covers 0.06% of Ken Fisher’s 13F portfolio.
Some of the top pure-play defense stocks to buy right now include HEICO Corporation (NYSE:HEI), The Boeing Company (NYSE:BA), Lockheed Martin Corporation (NYSE:LMT), and Northrop Grumman Corporation (NYSE:NOC).
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Disclosure. None. 10 Defense Stocks to Buy Amid Escalating Geopolitical Tensions is originally published on Insider Monkey.
