In this article, we will look at the 10 Worst Aerospace Stocks To Buy According to Short Sellers.
The world is in a constant state of turmoil. Geopolitical tensions are escalating, leading to full-blown wars in certain world regions. While such tensions are dealbreakers for several industries, the aerospace and defense sector runs on a different model. Ironically, increasing geopolitical tensions are one of the most positive signs of profitability for these companies.
One of the critical drivers of revenue for such companies is government contracts for military-grade weapons, aircraft, and defense systems. The increased risk of war boosts defense spending, landing aerospace and defense companies more contracts.
With defense stocks soaring after Iran’s recent missile attacks on Israel, investors are wondering if this is an overreaction to the ongoing conflict.
Scott Ladner, Chief Investment Officer at Horizon Investments, joined CNBC on October 2nd to discuss tensions in the Middle East and defense stocks. He sees potential in small caps and cyclical sectors if the economy cools. He said that although investors shouldn’t do anything in terms of the port strike stuff, it was too early to predict things related to the conflict in the Middle East.
The market tends to look through it very well when we look at the conflicts that have arisen in the region in the past. However, since Iran’s recent missile attacks on Israel seem more serious, the situation needs to be watched carefully. Despite that, Ladner says that he is optimistic at the present and believes they will find a way through the situation.
He is also of the view that the world is not getting any safer, with more money being put aside for defense. Apart from the situation in the Middle East, special threats from China and Taiwan, although not an urgent concern, also require careful attention. These circumstances make investing in defense stocks a reasonable choice in the present.
Sheila Kahyaoglu, a Jefferies defense analyst, joined CNBC’s ‘The Exchange’ on October 1 and said that the base case for US defense spending is in the 3-5% range. She also said that certain stocks in the defense sector have a potentially high revenue upside due to the events unfolding across the world.
Growth in Aircraft Orders
While sharing his insights on commercial aviation at the Morningstar Investment Conference in Chicago on June 26, Tony Bancroft from Gabelli Funds said he had noticed significant growth in aircraft orders, with both Boeing and Airbus holding a 12-year backlog of orders. He listed three reasons for this growth. The first catalyst, according to his perception, was China. China accounts for around 20% of the growth in orders to cater to the growing middle class in both India and China. This middle class has an increased inclination for travel.
Secondly, business travel has bounced back to pre-pandemic levels of 2019, marking another critical factor for this growth. Bancroft highlighted the rising middle class in the US and the world to be the third factor. This middle class is growing air travel and contributing positively to economic growth in the industry.
Trends in the Aerospace and Defense Industry
The aerospace and defense (A&D) industry experienced a revival in product demand in 2023. According to a report by Deloitte, domestic commercial aviation revenue passenger kilometers in the aerospace sector exceeded prepandemic levels in most countries. The increase in air travel has prompted an increased demand for new aircraft and aftermarket services and products across the globe.
The demand for weapons and next-generation capabilities in the US defense sector drove solid demand in 2023, primarily due to the ongoing geopolitical conditions and the prioritization of modernizing the military. This growing demand for A&D products is expected to continue throughout 2024.
With these trends in view, let’s look at the 10 worst aerospace stocks to buy according to short sellers.
10 Worst Aerospace Stocks To Buy According to Short Sellers
Our Methodology
To list the 10 Worst Aerospace Stocks To Buy According to Short Sellers, we used the Finviz screener, ETFs, and rankings to first identify 30 Aerospace stocks. Next, we narrowed our list by selecting the 10 stocks that have high short interest but also a high number of hedge fund investors. Finally, these stocks were ranked in ascending order of their short interest. We have also added the number of hedge funds holding each stock as a secondary metric.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Worst Aerospace Stocks To Buy According to Short Sellers
10. Eve Holding Inc (NYSE:EVEX)
Short % of Float: 3.33%
Number of Hedge Fund Holders: 5
Eve Holding (NYSE:EVEX) is an aerospace company that develops Urban Air Mobility (UAM) solutions and operates in Florida, Melbourne, and Brazil. Its operations cover the design and production of electric vertical takeoff and landing vehicles (eVTOLs) and the new Urban Air Traffic Management system. This system allows eVTOLs to operate in dense airspace along with conventional aircraft and drones. The company is also engaged in a portfolio of company and third-party eVTOL support and maintenance services. These include material services, technical support, maintenance, ground handling, training, and data services.
Eve Holding (NYSE:EVEX) markets its eVTOLs to UAM services operators, including helicopter and fixed-wing operators and lessors that purchase and manage aircraft on behalf of operators. It also engages with ridesharing platform operators to secure committed operation hours for its eVTOLs. Since the company is pre-operationally developing its eVTOL and ecosystem, its financials primarily reflect the costs associated with program development.
It is, however, making quick strides in the field. It had a successful first half of 2024, naming several achievements. The most significant was the quick base advancement in assembling its full-scale prototype. This operation is working right on schedule. The company is also developing a solid network of partners in domains like energy and infrastructure to address the most significant challenge ahead of Urban Air Mobility: creating a whole new ecosystem instead of simply developing aircraft.
Eve Holding (NYSE:EVEX) also emphasizes proper maintenance and support to provide best-in-class services to eVTOL’s operators. It has secured contracts with 12 different customers for maintenance, repair, and overhaul (MRO). This initiative is expected to bring up to $935 million in revenue to the company in five to ten years. Since these customers have placed LOIs for around 1,000 of Eve’s aircraft (which makes up 35% of its order book), it can potentially expand the business within its customer base. Eve Holdings (NYSE:EVEX) takes the tenth spot on our list of the 10 worst aerospace stocks to buy according to short sellers.
9. Sky Harbour Group Corporation (NYSE:SKYH)
Short % of Float: 3.76%
Number of Hedge Fund Holders: 4
Sky Harbour Group (NYSE:SKYH) is an aviation infrastructure company that develops a nationwide network of home-basing solutions for business aircraft. It develops, leases, and manages general aviation hangars throughout the US. The company’s home-basing offering provides private and corporate costumes with the physical infrastructure in business aviation and personalized service to based aircraft.
The home-basing hangar campuses provide a portfolio of services and features. These include line crew and services exclusively for tenants, private hangar space for exclusive use, adjoining office suits and configurable lounge, climate control to manage condensation and associated corrosion, no-foam fire suppression, and several others. They also provide control access and monitor hangar space.
The company’s harbor construction activity picked up speed in Q2 and is expected to continue accelerating with an increased focus on construction. Its revenue grew in Q2 2024. This was primarily because of certain tenant leases that kicked in during Q2, wlong with the benefits of some tenant renewals of its first lease expirations and some tenant replacements, both at higher rental rates.
Sky Harbor (NYSE:SKYH) is undertaking a new development phase and construction of its accelerated growth plan. It is starting with three projects that are currently in progress and on track. They are somewhat even ahead of schedule and are expected to be wrapped by Q1 fiscal 2025. The growth plans will continue in 2025 and 2026.
The company is expected to start constructing eight projects and finish three in 2025, bringing the total to 11. Similarly, 2026 is expected to see the start of 15 projects and the completion of 7, with the total count reaching 22. Its accelerated growth plan of 33 projects between 2025 and 2026 thus gives it an attractive appeal.
Sky Harbor’s (NYSE:SKYH) intentions to continue accelerating on-site acquisition give it a competitive market edge, as it is on the path to securing the resources to grow. The company ranks ninth on our list of the top worst aerospace stocks to buy according to short sellers.
8. HEICO Corp (NYSE:HEI)
Short % of Float: 4.26%
Number of Hedge Fund Holders: 53
HEICO Corp (NYSE:HEI) manufactures jet engines and aircraft component replacement parts. It operates in two segments: Flight Support Group (FSG) and Electronic Technologies Group (ETG). The FSG Segment repairs, overhauls, and distributes aircraft and jet engine components, instruments, and avionics for aircraft repair companies, domestic and foreign commercial air carriers, and military and business aircraft operators. It comprises the HEICO Aerospace Holdings Corp. and HEICO Flight Support Corp., along with their subsidiaries.
The company’s ETG segment comprises HEICO Electronics Technologies Corp and its subsidiaries. It manufactures, designs, and sells several kinds of data and microwave, electronic, and electro-optical products, including laser rangefinder receivers, infrared simulation and test equipment, backup power supplies, and electrical power supplies.
HEICO Corp (NYSE:HEI) is running on solid fundamentals. Its net sales and consolidated operating income produced record results in Q2 2024, improving by 39% and 33%, respectively, compared to Q2 2023. This growth was primarily due to a 21% increase in organic net sales growth in the Flight Support aftermarket replacement parts. The Flight Support Group’s net sales reached a record $647.2 million in the quarter, experiencing a 65% increase. Other factors supporting this growth include improved results at ETG, the impacts of profitable fiscal 2023 and 2024 acquisitions, and strong organic growth.
The company’s investment in Wencor is proving profitable. HEICO and Wencor’s high-quality products hold a competitive advantage in the market. HEICO Corp (NYSE:HEI) expects a continuation of net sales growth in ETG and FSH in the second half of 2024. This growth will primarily be driven by a strong demand for the company’s products and contributions from its fiscal 2023 and 2024 acquisitions.
ETG is specifically in a solid position to expand and grow its net sales of defense-related products in the second half of 2024, supported by a strong backlog. The company is increasingly developing new products and services to further improve profitability, ensuring commitment to further market penetration while maintaining its flexibility and financial strength.
Alger Small Cap Growth Fund stated the following regarding HEICO Corporation (NYSE:HEI) in its Q2 2024 investor letter:
“HEICO Corporation (NYSE:HEI) is a leading manufacturer of Federal Aviation Administration (FAA) approved jet engine and aircraft component replacement parts. We believe the company is well-positioned to benefit from the steady aging of the global commercial aerospace fleet, resulting in increased consumption of aftermarket parts. Additionally, ongoing production issues from two major aircraft manufacturers have reduced the projected new plane deliveries, further supporting our view that the average age of the global fleet is likely to remain elevated over the next few years. During the quarter, HEICO’s shares contributed to performance, where the company delivered strong quarterly results with revenues and earnings beating analyst estimates along with continued execution on strategic tuck-in mergers and acquisitions.”
7. Lilium NV (NASDAQ:LILM)
Short % of Float: 7.27%
Number of Hedge Fund Holders: 5
Formerly known as Lilium BV, Lithium NV (NASDAQ:LILM) is an aviation company based in Germany. It specializes in developing electric vertical takeoff and landing (eVTOL) aircraft for air transport system use for goods and people that offer connectivity. Its product is the Lilium Jet: a seven-seater electric jet aircraft that takes off and lands vertically with low noise. The Jet architecture is based on Ducted Electric Vectored Thrust (DEVT) technology, comprising electric turbofans mounted within a cylindrical duct. Its eVTOL aircraft is fitted with lightweight materials, battery technology, sensors and computing power, and propulsion technology.
Lilium NV (NASDAQ:LILM) also operates a digital platform that offers integration between Lilium Jets and its vertiports. Customers can use its online booking channel to find suitable flights, select related travel products, make reservations, and collect necessary passenger information.
The company boasts a unique business model, approach, and core technologies that help it stand out. It has five primary differentiators that lend it a competitive industry edge. It has a management team with substantial prior experience in the field, with a majority of its employees being engineers.
In addition, it is working on the conviction that it is the only aerospace company resolving regional air mobility. It has a core technology built around its high-performance battery and redundant electrical management system. Since the company holds IP and proprietary rights on this technology, it is driving its leading product range and speed.
Lilium’s (NASDAQ:LILM) aircraft is one of the very few in the industry on track to achieve the highest certification standards in commercial aviation. It also has high-level safety standards that are likely to support its market entry in several jurisdictions across the globe. Its business model targets the most profitable portions of commercial aviation, the OEM, and aftermarket business.
The company is continually ramping up its business, focusing on airline customers with robust aftermarket service activity. Its momentum is growing, with its first test aircraft advancing and its order pipeline growing with significant funding progress. All these factors make it a profitable investment, giving it the seventh spot on our list of the 10 worst aerospace stocks to buy according to short sellers.
6. VSE Corporation (NASDAQ:VSEC)
Short % of Float: 7.68%
Number of Hedge Fund Holders: 14
VSE Corporation (NASDAQ:VSE) provides aftermarket maintenance and distribution, repair, and overhaul (MRO) services for government and commercial markets for air and land transportation assets. Its Aviation segment provides MRO services and aftermarket parts distribution and engine accessories that support business, commercial, and general aviation operators. It also offers an array of services to an elaborate global client base comprising MRO integrators and providers, commercial airlines, regional airlines, aviation manufacturers, cargo transporters, corporate and private aircraft owners, and fixed-based operators.
The company’s Aviation Commerical market is seeing positive results. Global airline passenger traffic is on the path to recovery, returning to, and in many cases even exceeding, record prepandemic levels. Revenue passenger miles for 2024 are expected to be around 4% higher than 2019 levels, with a continental annual increase expected over the next decade. Its global in-service fleet is also expected to expand by around 3% annually to accommodate increasing passenger demand.
The company is scaling its new European distribution Center of Excellence in Hamburg, Germany, which was launched earlier in 2024. The Center presently supports its Pratt & Whitney Canada aftermarket program, and will support additional distribution products, including tires, batteries, and tubes, from its Desser acquisition later in 2024. In addition, the company’s launch of the new OEM-licensed Fuel Control Manufacturing program is exceeding early expectations, supporting segment profitability. Its Kansas facility expansion is set to support the manufacturing of this new product line and will be operational by the end of 2024.
VSE Corp (NASDAQ:VSE) is thus running on a strong operational model. It is building a core competency in acquisition integration, with its Desser acquisition expected to be completed in the coming months. This integration will be supported by its new e-commerce site that will also support all Aviation and legacy Desser customers. The new VSE Aviation site is expected to be launched in Q3 2024. The company’s recent acquisition of Turbine Controls is also exceeding initial expectations. VSE Corp’s initial focus for this business is to add capacity and increase its scope with existing engine OEM partners.
5. Redwire Corporation (NYSE:RDW)
Short % of Float: 7.81%
Number of Hedge Fund Holders: 8
Redwire Corporation (NYSE:RDW) is a global space infrastructure and innovation company that develops core space infrastructure offerings through long-duration projects for governments and commercial customers. It also specializes in civil, commercial, and national security programs and has an array of core offerings. These include production capabilities and technologies for sensors and avionics, radio frequency systems, structures and mechanisms, power generation, platforms, microgravity payloads, and payloads and missions. These offerings have civil space, national security, and commercial applications and are offered to both international and US-based customers.
The company’s spacecraft portfolio supports specified national security space missions in geostationary orbit. Its solutions and products include satellite technology, antennas, deployable space structures, space-qualified sensors, berthing and docking equipment, and space-enabled manufacturing payloads.
Redwire Corporation has strong financials in place, delivering year-over-year revenue and positive adjusted EBITDA growth. Revenue in Q2 2024 reached $78.1 million, undergoing a 30% growth compared to Q2 2023. Positive adjusted EBITDA stood at $1.6 million, with an improved ending liquidity of $55.8 million as of June 30, 2024. Redwire Corporation (NYSE:RDW) achieved these solid financial results while simultaneously investing in new technologies, maturing corporate infrastructure, and expanding production capacity throughout the first half of 2024. It is continually balancing near-term results with long-term growth.
It has several plans in place for 2024 to continue the positive momentum. These plans are centered around four key principles: protecting the core, scaling production, moving up the value chain, and pursuing breakthrough developments on advanced technologies to create new markets with immense potential. It is continuing to leverage its proven capabilities to develop and deploy space subsystems and components in the next-generation spacecraft and integrated mission payloads. It is also winning and delivering increasingly larger orders to meet growing demand and boost scalability. Redwire Corporation (NYSE:RDW) ranks fifth on our list of the worst aerospace stocks to buy according to short sellers.
4. Spirit Aerosystems Holdings, Inc. (NYSE:SPR)
Short % of Float: 8.71%
Number of Hedge Fund Holders: 32
Spirit AeroSystems (NYSE:SPR) is a non-original equipment manufacturer (OEM) manufacturer of aerostructures that serves markets for commercial airplanes, business/regional jets, and military platforms. Its operations are divided into three segments: Commercial, Defense & Space, and Aftermarket. Its Commercial segment includes the design and manufacturing of forward, mid, and rear fuselage sections and systems, nacelles, struts, and related engine and structural components.
It also covers miscellaneous structural parts. The Defense & Space segment includes the design and manufacturing of structural parts primarily for the United States government defense programs. The Aftermarket segment, in contrast, includes the design, marketing, and manufacturing of spare parts, along with offering maintenance, repair, and overhaul services.
3. Triumph Group, Inc. (NYSE:TGI)
Short % of Float: 11.50%
Number of Hedge Fund Holders: 25
Triumph Group (NYSE:TGI) serves the global aviation industry. It designs, manufactures, engineers, repairs, and overhauls a portfolio of aerospace and defense components, systems, subsystems, and structures. It also serves original equipment manufacturers (OEMs) and military and commercial aircraft operators through the aircraft life cycle. Triumph Group operates through two segments: Triumph Systems & Support and Triumph Interiors.
Triumph Systems & Support designs, develops, and supports proprietary components, systems, and subsystems. It also provides full life cycle solutions for regional, commercial, and military aircraft, while also producing complex assemblies using external designs. Triumph Interiors, in contrast, supplies business, commercial, regional, and military manufacturers with insulation parts and interior and composite components to Triumph and customer designs. It also encompasses environmental control system ducting, the manufacture of thermo-acoustic insulation, and other aircraft interior components for aerospace OEMs.
Triumph Group (NYSE:TGI) started 2024 on a positive note, and expects continued improvement throughout 2025 into seasonally stronger quarters. Its revenue grew by 7% to $281 million, translating to an additional $17 million. It retired an additional $120 million of debt, strengthening its balance sheet. The company recently received rating upgrades from both S&P and Moody’s.
The company is benefiting from a rising average fleet age, with its aftermarket sales growing 27% year over year. The need to fly older aircraft due to the shortage of new aircraft and the emergent 787 landing gear overhaul cycle are also important factors. In addition, the continual rise in repairs and spares on key platforms is benefitting the company’s sales mix and financials. These include the Boeing 737 and Airbus A320 fleet and the Boeing 787 and Airbus A380 wide-body fleets.
Overall, Triumph (NYSE:TGI) is on track to achieve its annual net sales, cash flow guidance, and adjusted EBITDA. It is well-positioned to capitalize on the strong aftermarket demand in the short term and the higher OEM build rates over the coming 18 months.
2. EHang Holdings Limited (NASDAQ:EH)
Short % of Float: 12.58%
Number of Hedge Fund Holders: 7
EHang Holdings (NASDAQ:EH) is an investment holding company that provides unmanned aerial vehicle (UAV) systems and solutions. It operates three businesses: the air mobility solutions business, the aerial media solutions business, and the smart city management solutions business.
The air mobility solutions business provides customers with vertical takeoff and landing (eVTOL) aircraft solutions, products, and operational services for air transportation of cargo, passengers, emergencies, and others. The aerial media solutions business provides aerial media performances, also known as drone light shows. It conducts this business in the overseas and domestic markets. The smart city management solutions business provides an integrated digital platform with customized UAV models as turn-key solutions for managing and monitoring many ordinary minicipal functions and public utilities.
EHang (NASDAQ:EH) is one of the leading companies in the eVTOL industry and has achieved remarkable success across various aspects since Q2 2024. This includes orders and deliveries, financial performance, industry standards and certifications, production ramp-up, operation site deployment, and R&D of next-generation technologies and products. These initiatives allow the company to continue leading the global urban air mobility industry.
It obtained a production certificate in April, the PC for our EHang 216-S, becoming the world’s only eVTOL developer, designer, and manufacturer with three certifications for the pilotless passenger-carrying eVTOL aircraft. These certifications give the company a significant competitive advantage. Strengthened by widespread development plans nationwide and strong market demand for innovative low-altitude aircraft, the company’s eVTOL product is gathering considerable attention, as well as customers and bulk orders.
EHang (NASDAQ:EH) signed a MoU with GAC in June to establish a joint venture. This venture will leverage GAC’s advantages and expertise in automated production lines and intelligent electric vehicle manufacturing to produce pilotless passenger-carrying aircraft in Guangzhou. It will boost the company’s future production capacity, positioning it to respond to market demand quicker and strengthen the scale and efficiency of its product deliveries. EHang (NASDAQ:EH) ranks second on the list of the worst aerospace stocks to buy according to short sellers.
1. Rocket Lab USA Inc. (NASDAQ:RKLB)
Short % of Float: 16.43%
Number of Hedge Fund Holders: 15
Rocket Lab (NASDAQ:RKLB) is an end-to-end space company that designs and manufactures spacecraft and spacecraft components, small and medium-class rockets, and related services and software to support the space economy. It also delivers spacecraft design services, reliable launch services, spacecraft components, spacecraft manufacturing, and other on-orbit and spacecraft management solutions that ease access to space.
The company operates in two segments: the Space Systems segment and the Launch Services segment. The Space Systems segment comprises spacecraft components, spacecraft engineering and design services, spacecraft manufacturing, and on-orbit mission operations. The space systems segment provides solutions that make up the building blocks for spacecraft, including reaction wheels, solar solutions, composite structures, separation systems, radios, power solutions, and command and control spacecraft software. The Launch Services segment encompasses launch and launch-related services on a ride-share or dedicated mission basis.
Rocket Lab’s (NASDAQ:RKLB) biggest competitive advantage is its ability to establish its own space capabilities and constellations. It can build and launch its own spacecraft at cost without having to wait in line for limited launch capacity. With the demand for data and services provided by spacecraft continuously increasing, the company is in a position to deliver long-term recurring revenue and incremental value for shareholders.
Apart from its long-term competitive edge, the company is delivering solid fundamentals. Revenue for Q2 2024 surpassed the $100 million for the first time in company history, reaching $106 million. It also achieved a 15% quarter on quarter increase and 71% year on year increase, showing the company’s continued strength in offering diversified services and products. This growth is primarily driven by a significant growth in its space systems business and increased launches. As of Q2 close, the company’s backlog sits at more than $1 billion.
Overall, RKLB ranks first among the 10 worst aerospace stocks to buy according to short sellers. While we acknowledge the potential of aerospace stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RKLB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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