In this article, we discuss the 10 defense stocks to buy as geopolitical tensions rise. If you want to skip our detailed analysis of these stocks, go directly to the 5 Defense Stocks to Buy As Geopolitical Tensions Rise.
The United States and Europe are set to raise military spending in the coming months amid the Russian invasion of Ukraine. Germany has already announced a $112 billion increase in defense spending while the Pentagon is set to request the administration of United States President Biden to hike the defense budget to $773 billion for 2023, an increase of 4.4% from the 2022 budget and up more than 8% compared to initial requests of $715 billion. As a result, defense stocks have been trending higher on the stock market.
Defense Stocks Climb in US and Europe
Exchange-traded funds (ETFs) that track defense stocks are also climbing. iShares U.S. Aerospace & Defense ETF, one of the largest defense-focused ETFs with 33 equity holdings, has soared by over 5% since Russian President Putin ordered troops into Ukraine. Other defense stocks like Honeywell International Inc. (NASDAQ:HON), Raytheon Technologies Corporation (NYSE:RTX), and Lockheed Martin Corporation (NYSE:LMT) are also spiking, with the latter two registering increases of 8% and 18% respectively.
Although the US and EU have so far ruled out boots on the ground, there has been lots of military assistance promised. The weapons being sent for resistance efforts in Kyiv include Javelin anti-tank missiles and Stinger anti-aircraft missiles, manufactured by leading defense firms in the US. The North Atlantic Treaty Organization (NATO) is also beefing up military presence in countries near Ukraine. Even Japan is likely to beef up military spending to more than 1% of the GDP for the first time in nearly six decades.
Photo by Joel Rivera-Camacho on Unsplash
Our Methodology
The companies that operate in the defense sector and have been on the radar of market experts amid the Russian invasion of Ukraine were selected for the list. Data from around 900 elite hedge funds tracked by Insider Monkey was used to identify the number of hedge funds that hold stakes in each firm.
Defense Stocks to Buy As Geopolitical Tensions Rise
10. Astronics Corporation (NASDAQ:ATRO)
Number of Hedge Fund Holders: 17
Astronics Corporation (NASDAQ:ATRO) markets products for the aerospace, defense, and electronics industries. In September last year, the company received a follow-on order from Collins Aerospace worth $19 million for jet connectivity equipment. The order will be delivered this year. Initially, Collins Aerospace had placed an order worth $11 million worth of equipment in February 2021. The firm posted a revenue of over $115 million in the fourth quarter of 2021.
Astronics Corporation (NASDAQ:ATRO) makes and sells products for airframe manufacturers. These manufacturers serve various government and private organizations, including the United States Department of Defense. The firm also sells inflight entertainment products.
At the end of the fourth quarter of 2021, 17 hedge funds in the database of Insider Monkey held stakes worth $82 million in Astronics Corporation (NASDAQ:ATRO), up from 13 the preceding quarter worth $79 million.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Royce & Associates is a leading shareholder in Astronics Corporation (NASDAQ:ATRO) with 1.5 million shares worth more than $18 million.
Just like Honeywell International Inc. (NASDAQ:HON), Raytheon Technologies Corporation (NYSE:RTX), and Lockheed Martin Corporation (NYSE:LMT), Astronics Corporation (NASDAQ:ATRO) is one of the stocks that elite investors are buying.
In its Q1 2020 investor letter, Diamond Hill Capital, an asset management firm, highlighted a few stocks and Astronics Corporation (NASDAQ:ATRO) was one of them. Here is what the fund said:
“Aerospace and defense industry supplier Astronics Corporation (NASDAQ:ATRO) underperformed amid a changing near-term economic outlook as a result of the COVID-19 pandemic. We believe Astronics Corporation (NASDAQ:ATRO) has enough liquidity to make it through the current downturn and eventually return to a more normal level of business activity.”
9. Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD)
Number of Hedge Fund Holders: 30
Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) is an aerospace and defense firm. On February 8, Jefferies analyst Greg Konrad upgraded the stock to Buy from Hold with a price target of $47, noting the growth drivers for the firm in the GBSD and Hypersonics markets. The analyst also cited the strong balance sheet of the firm in a bullish analysis that forecast 20% EPS accretion in the best case.
Private equity companies are reportedly interested in acquiring Aerojet Rocketdyne Holdings, Inc. (NYSE: AJRD) after defense giant Lockheed Martin failed to close a merger deal with the firm. Boardroom tussles at Aerojet are the primary reasons behind the sale.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Steel Partners is a leading shareholder in Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) with 3.9 million shares worth more than $184 million.
At the end of the fourth quarter of 2021, 30 hedge funds in the database of Insider Monkey held stakes worth $885 million in Aerojet Rocketdyne Holdings, Inc. (NYSE: AJRD), compared to 33 the preceding quarter worth $765 million.
8. Northrop Grumman Corporation (NYSE:NOC)
Number of Hedge Fund Holders: 33
Northrop Grumman Corporation (NYSE:NOC) is a Virginia-based aerospace and defense firm. The company stands to gain from the Russian invasion of Ukraine as European nations, including Germany, step up military spending in the wake of threats from Moscow. Berlin has already announced a $112 billion boost in defense spending and other European nations are expected to follow suit.
On January 28, Susquehanna analyst Charles Minervino maintained a Positive rating on Northrop Grumman Corporation (NYSE:NOC) stock and raised the price target to $437 from $416, underlining that the shareholder-friendly capital return policy and US defense priorities were strong enough to offset some short-term headwinds for the company.
At the end of the fourth quarter of 2021, 33 hedge funds in the database of Insider Monkey held stakes worth $561 million in Northrop Grumman Corporation (NYSE:NOC), up from 29 in the preceding quarter worth $910 million.
Among the hedge funds being tracked by Insider Monkey, Texas-based investment firm Yacktman Asset Management is a leading shareholder in Northrop Grumman Corporation (NYSE:NOC) with 442,198 shares worth more than $171 million.
In its Q4 2020 investor letter, Artisan Partners Limited Partnership, an asset management firm, highlighted a few stocks and Northrop Grumman Corporation (NYSE:NOC) was one of them. Here is what the fund said:
“New purchases include Northrop Grumman Corporation (NYSE:NOC). Northrop Grumman is a leader in manned aircraft, unmanned aircraft, spacecraft and missile-defense systems. We initiated a position in November 2020, as we believe the name is trading at an undeserved discount, despite having the potential to accelerate revenue over the next 24 months. In 2020, Northrop Grumman Corporation (NYSE:NOC) signed a contract to work with the US Air Force on their Ground Based Strategic Deterrent (GBSD) and B21 bomber. We believe the company’s portfolio is well-positioned with a highly desirable space segment business, significant classified content and GBSD driving growth. While the market has been focused on a “blue wave” risk to the defense budget, the industry is typically driven by threat assessment rather than budget constraints. If budget cuts were ever to affect the US Army, that customer represents less than 10% of the company’s revenue. This reinforces our belief that Northrop Grumman Corporation (NYSE:NOC) is well-positioned for the future and trades at an attractive valuation.”
7. Textron Inc. (NYSE:TXT)
Number of Hedge Fund Holders: 35
Textron Inc. (NYSE:TXT) operates in the aircraft, defense, industrial, and finance sectors. The company has paid a dividend to shareholders consistently for more than three decades. On February 23, it declared a quarterly dividend of $0.02 per share, in line with previous. The forward yield was 0.12%. The firm also posted a revenue of more than $3.3 billion in the fourth quarter of 2021. The EPS was $0.94 per share.
One of the benefits of Textron Inc. (NYSE:TXT) stock over other names in the defense sector is that the company has a diversified business model where setbacks in one sector of the economy are offset by performances in other sectors.
At the end of the fourth quarter of 2021, 35 hedge funds in the database of Insider Monkey held stakes worth $1 billion in Textron Inc. (NYSE:TXT), up from 31 in the previous quarter worth $1.1 billion.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Adage Capital Management is a leading shareholder in Textron Inc. (NYSE:TXT) with 4.3 million shares worth more than $339 million.
6. HEICO Corporation (NYSE:HEI)
Number of Hedge Fund Holders: 40
HEICO Corporation (NYSE:HEI) makes and sells aerospace, defense, and electronic products. On January 7, Truist analyst Michael Ciarmoli upgraded the stock to Buy from Hold and raised the price target to $182 from $135, noting the company continued to be a “differentiated supplier” in the aero sector with a sustained track record of success and consistency, as well as one of the leading merger and acquisition strategies in the industry.
On February 10, HEICO Corporation (NYSE:HEI) announced that it had agreed to acquire a 74% stake in New York-based specialty defense spares distributor Pioneer Industries. The purchase expands the portfolio of products offered by HEICO.
Among the hedge funds being tracked by Insider Monkey, China-based investment firm Gobi Capital is a leading shareholder in HEICO Corporation (NYSE:HEI) with 925,879 shares worth more than $118 million.
At the end of the fourth quarter of 2021, 40 hedge funds in the database of Insider Monkey held stakes worth $660 million in HEICO Corporation (NYSE:HEI), up from 35 in the previous quarter worth $719 million.
Along with Honeywell International Inc. (NASDAQ:HON), Raytheon Technologies Corporation (NYSE:RTX), and Lockheed Martin Corporation (NYSE:LMT), HEICO Corporation (NYSE:HEI) is one of the stocks that institutional investors have their eye on.
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Disclosure. None. 10 Defense Stocks to Buy As Geopolitical Tensions Rise is originally published on Insider Monkey.
