In this article, we discuss the 10 undervalued defense and military stocks to buy now. If you want to skip our detailed analysis of the defense and military sector, go directly to 5 Undervalued Defense and Military Stocks to Buy Now.
Geopolitical turmoil and all-out war tend to spell misery for financial markets around the world, but defense stocks see golden days when times are bad. Defense companies are on an upward surge ever since Russia-Ukraine tensions started hitting news headlines around the globe. Now that the Russian attack on Ukraine is more than two weeks in, countries around the world are ramping up military spending in order to counter the the threat of Russia, or any belligerent neighbor, invading their sovereign territory. Germany has decided to spend 2% of its GPD annually on military spending, and has set up a $112 billion fund to re-arm and modernize its army in 2022. The United States will up its defense budget to more than $770 billion for 2023, with the Pentagon increasing its initial budget request from $715 billion, a jump of 8%.
Countries around Ukraine are seeing heavy military build-ups as The North Atlantic Treaty Organization (NATO) postures to prevent further Russian aggression. Although no foreign military is engaging with the Russians in Ukraine, plenty of military help has been sent by the United States and its European allies to warring Ukraine. These include Javelin anti-tank missiles made by US defense giant Lockheed Martin Corporation (NYSE:LMT) and Stinger air-defense systems by Raytheon Technologies Corporation (NYSE:RTX).
Sentiments of war-profiteering aside, it is wise for investors to know which companies in the defense and military sector are trading below their intrinsic market value. Some of the top defense and military stocks to buy now include Northrop Grumman Corporation (NYSE:NOC), Lockheed Martin Corporation (NYSE:LMT) and Huntington Ingalls Industries, Inc. (NYSE:HII), along with others mentioned below.
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Our Methodology
To compile the following list, we picked defense and military companies with PE (price/earnings) ratio of less than 20. Hedge fund sentiment around each stock was derived from Insider Monkey’s database of 924 elite hedge funds.
10 Undervalued Defense and Military Stocks to Buy Now
10. VirTra, Inc. (NASDAQ:VTSI)
Number of Hedge Fund Holders: 4
PE Ratio (as of March 10): 14.22
VirTra, Inc. (NASDAQ:VTSI) starts off our list of undervalued defense and military stocks to buy. Based in Arizona, the company provides firearms training simulators, and driving simulators for military, law enforcement, educational, and commercial markets around the globe.
In December 2021, VirTra, Inc. (NASDAQ:VTSI) was given a standing offer from the Canadian government to supply marksmanship and judgmental use of force simulation technology to various law enforcement, border protection and corrections facilities throughout the country. This offer will allow the Government of Canada to repeatedly purchase goods/services at pre-arranged prices from VirTra, Inc. (NASDAQ:VTSI). In February, the firm received its first orders under this standing offer from a Canadian law enforcement agency.
VirTra, Inc. (NASDAQ:VTSI) also received two orders for its simulation technology from two foreign countries in January, worth $1.6 million and $1.1 million each. These purchases include simulators, software, content and associated training tools.
Jim Simons’ Renaissance Technologies upped its stake by 455% in VirTra, Inc. (NASDAQ:VTSI) during Q4 2021, holding roughly 111,000 shares worth $776,000, which made it the largest shareholder of the firm. In total, 4 hedge funds were bullish on VirTra, Inc. (NASDAQ:VTSI) stock in the fourth quarter, same as the quarter before.
In addition to Northrop Grumman Corporation (NYSE:NOC), Lockheed Martin Corporation (NYSE:LMT) and Huntington Ingalls Industries, Inc. (NYSE:HII), VirTra, Inc. (NASDAQ:VTSI) is a top undervalued defense and military stock to buy.
9. Ducommun Incorporated (NYSE:DCO)
Number of Hedge Fund Holders: 9
PE Ratio (as of March 10): 4.61
Ducommun Incorporated (NYSE:DCO) stock was held by 9 hedge funds in the fourth quarter of 2021, with combined holdings worth $612.6 million. Royce & Associates held a $20 million stake in the firm comprising of 428,000 shares, making it the top shareholder of Ducommun Incorporated (NYSE:DCO) in Q4 2021.
Based in California, Ducommun Incorporated (NYSE:DCO) provides engineering and manufacturing products to the aerospace and defense industries in the United States. These include aircraft avionics racks, shipboard communications, and aircraft parts such as flight control surfaces, engine components, ammunition handling systems, and magnetic seals. Last year, Ducommun Incorporated (NYSE:DCO) announced that it had been recognized as an Airbus Detail Parts Partner by Airbus, and awarded a long-term contract to work on key products for the A320 and A330 programs.
In December, Ducommun Incorporated (NYSE:DCO) acquired Rhode Island-based Magnetic Seal Corporation for an undisclosed fee. Magnetic Seal Corporation provides sealing solutions to every branch of the US military and is a part of over 50 commercial and military aircraft programs including the AH-64 Apache, F-15 and F-18 fighter jets, C-130 transports and A320 jets. This deal will help further advance Ducommun Incorporated’s (NYSE:DCO) industry offerings.
Ducommun Incorporated (NYSE:DCO) posted an EPS of $0.79 for the fourth quarter, which was in-line with estimates. Q4 revenue stood at $164.84 million, which was up 4.47% compared to the year-ago quarter, but missed estimates by $3.50 million.
8. Sturm, Ruger & Company, Inc. (NYSE:RGR)
Number of Hedge Fund Holders: 15
PE Ratio (as of March 10): 8.03
Sturm, Ruger & Company, Inc. (NYSE:RGR) is a firearms manufacturer based in the United States, and ranks next on our list of undervalued defense and military stocks to buy. It offers firearms under its Marlin name, which include sporting rifles, pistols, single-action and double-action revolvers; and firearms accessories and replacement parts. The firm sells its products to clients around the world, which mostly include law enforcement agencies and foreign governments.
As of the fourth quarter, 15 out of 924 elite hedge funds tracked by Insider Monkey were bullish on Sturm, Ruger & Company, Inc. (NYSE:RGR) shares, with aggregate stakes worth $99.8 million. In contrast, 16 hedge funds held positions worth $130.5 million in the firm a quarter ago. With 1.03 million shares valued at $70.1 million, Renaissance Technologies of billionaire Jim Simons was the largest shareholder in Sturm, Ruger & Company, Inc. (NYSE:RGR) in the fourth quarter.
On February 23, Sturm, Ruger & Company, Inc. (NYSE:RGR) declared a $0.86 per share quarterly dividend, which is an 8.9% increase from its prior dividend of $0.79. As of March 10, Sturm, Ruger & Company, Inc. (NYSE:RGR) offers a healthy dividend yield of 4.98%.
7. Smith & Wesson Brands, Inc. (NASDAQ:SWBI)
Number of Hedge Fund Holders: 17
PE Ratio (as of March 10): 3.23
Smith & Wesson Brands, Inc. (NASDAQ:SWBI) is another firearms manufacturer that features on our list of undervalued defense and military stocks to buy. The Massachusetts-based firm provides revolvers and pistols, long guns and firearms related accessories, and also provides manufacturing services such as heat treating, rapid prototyping, finishing, machining, and custom plastic injection molding to various industries.
In December, Lake Street analyst Mark Smith maintained a ‘Buy’ rating on Smith & Wesson Brands, Inc. (NASDAQ:SWBI) shares, and lowered the price target to $38 from $43, noting that although revenue decreased from last year, the firm saw an increase in adjusted EBITDA which demonstrate its flexible manufacturing capabilities, as demand normalized following “18 months of historic demand.” The analyst sees Smith & Wesson Brands, Inc. (NASDAQ:SWBI) as well-positioned to capitalize on over 12 million new gun owners added to government records since early 2020.
Out of 924 elite hedge funds that were tracked by Insider Monkey in the fourth quarter of 2021, 17 hedge funds held positions in Smith & Wesson Brands, Inc. (NASDAQ:SWBI), with a combined value of $83.2 million. In comparison, 19 hedge funds were long on the company shares in the third quarter, with aggregate holdings worth $138.5 million.
6. Huntington Ingalls Industries, Inc. (NYSE:HII)
Number of Hedge Fund Holders: 23
PE Ratio (as of March 10): 15.61
Huntington Ingalls Industries, Inc. (NYSE:HII) is based in Virginia, close to the national defense headquarters of the United States government, and deals in the design, construction and repair of military ships. It builds amphibious assault ships, expeditionary warfare ships and surface combatants for the US Navy and US Coast Guard. The firm also deals in the provision of nuclear-powered ships, such as aircraft carriers and submarines.
Hedge funds were seen loading up on Huntington Ingalls Industries, Inc. (NYSE:HII). In the fourth quarter of 2021, 23 hedge funds held stakes worth $199 million in the firm. This is up from 15 hedge funds in the previous quarter, with combined holdings worth $163.3 million.
On February 17, Huntington Ingalls Industries, Inc. (NYSE:HII) was awarded a cost-plus-fixed-fee modification to its contract with the US Navy, worth $188.91 million. Under this contract modification, the firm will continue its repair, maintenance, upgrades and modernization efforts on the USS Columbus.
In December, Huntington Ingalls Industries, Inc. (NYSE:HII) was initiated with an ‘Outperform’ rating and a $225 price target by Wolfe Research analyst Michael Maugeri, who views the stock’s underperformance in the last two years as a good buying opportunity.
In early March, Huntington Ingalls Industries, Inc. (NYSE:HII) successfully completed the first contractor-owned, contractor-operated air combat training mission with the United States Air Force in Europe. This mission enables the US Air Force in Europe and Africa to enhance training readiness, and is a milestone for contracted adversary air training outside the United States.
Along with Northrop Grumman Corporation (NYSE:NOC) and Lockheed Martin Corporation (NYSE:LMT), Huntington Ingalls Industries, Inc. (NYSE:HII) is a trending defense and military stock to buy.
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Disclosure. None. 10 Undervalued Defense and Military Stocks to Buy Now is originally published on Insider Monkey.
