5 Best Aerospace Stocks To Buy

In this article, we discuss 5 best aerospace stocks to buy. If you want to see more stocks in this selection, check out 11 Best Aerospace Stocks To Buy. 

5. Northrop Grumman Corporation (NYSE:NOC)

Number of Hedge Fund Holders: 46

Northrop Grumman Corporation (NYSE:NOC) is an aerospace and defense company that operates worldwide through Aeronautics Systems, Defense Systems, Mission Systems, and Space Systems segments. On December 7, Northrop Grumman Corporation (NYSE:NOC) announced that it is competing with former partner Blue Origin to win NASA’s estimated $10 billion contract for its next moon lander. The aerospace company is collaborating with Leidos Holdings, Inc. (NYSE:LDOS) to manufacture a spacecraft that will bring astronauts to the lunar surface as part of the Artemis missions. Northrop Grumman Corporation (NYSE:NOC) is one of the premier aerospace stocks to invest in. 

On December 15, Morgan Stanley analyst Kristine Liwag raised the firm’s price target on Northrop Grumman Corporation (NYSE:NOC) to $626 from $585 and maintained an Overweight rating on the shares as well as her Top Stock Pick designation. 

According to Insider Monkey’s third quarter database, 46 hedge funds were bullish on Northrop Grumman Corporation (NYSE:NOC), compared to 45 funds in the prior quarter. Donald Yacktman’s Yacktman Asset Management is the largest stakeholder of the company, with 433,932 shares worth $204 million. 

LRT Capital made the following comment about Northrop Grumman Corporation (NYSE:NOC) in its October investor letter:

“Based in Virginia, Northrop Grumman Corporation (NYSE:NOC) is one of the world’s largest defense contractors with annual revenue of more than $30 billion. The company operates in a cozy oligopoly, that after decades of consolidation the US defense market is now controlled by five large companies: The Boeing Company (BA), General Dynamics Corporation (GD), Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC), and Raytheon Technologies Corporation (RTX).

Industry barriers to entry are immense, government procurement cycles are extremely long, and the consolidated industry structure reflects this. This industry structure has allowed Northrop to earn stable mid-teens returns on invested capital (ROIC) and grow earnings per share at a rate of over 13% per year in the past decade, despite a topline that has grown only in-line with inflation. Even after the recent run-up in the stock price, it trades at approximately 15x, next year’s earnings estimates, far below the S&P 500 index, despite being an above average company. While nominally, there are five major defense contractors, the true industry concentration is even higher because not all companies compete in all possible business segments. General Dynamics’ division submarine division, Electric Boat, is the sole supplier of nuclear power submarines in the United States. Lockheed Martin is the sole supplier of the F-35 and F-22. Northrop was the sole bidder on the contract to develop the next generation of intercontinental ballistic missiles; and so on…” (Click here to read the full text)

4. Lockheed Martin Corporation (NYSE:LMT)

Number of Hedge Fund Holders: 53

Lockheed Martin Corporation (NYSE:LMT) is a security and aerospace company engaged in the research, design, development, and sustainment of technology systems, products, and services worldwide. It operates through four segments – Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space. On December 16, Lockheed Martin Corporation (NYSE:LMT) was awarded a $302.24 million contract for the proof of manufacture, production, spares, production support material, and engineering support for components related to the MK 48 heavyweight torpedo. The Naval Air Systems Command is contracting the activity.

Citi analyst Jason Gursky initiated coverage of Lockheed Martin Corporation (NYSE:LMT) on December 8 with a Buy rating and a $546 price target. The analyst is positive on the growth outlook for Department of Defense spending through the remainder of the decade and the diversified nature of Lockheed Martin Corporation (NYSE:LMT)’s capabilities across all domains.

According to Insider Monkey’s Q3 data, Lockheed Martin Corporation (NYSE:LMT) was part of 53 hedge fund portfolios, compared to 55 in the prior quarter. Rajiv Jain’s GQG Partners is the biggest stakeholder of the company, with 1.66 million shares worth $641 million. 

Here is what Vltava Fund has to say about Lockheed Martin Corporation (NYSE:LMT) in its Q3 2022 investor letter:

“LMT is one of the world’s largest aerospace and defense companies. The war in Ukraine has reminded investors and the wider public just how important these companies are. The aerospace and defense industry in the USA is an established oligopoly. This means that a few large firms play a dominant role. While collectively they comprise an oligopoly, individually they often have monopoly positions in particular narrower segments. Their main counterparty is the US government, a key customer in what is known as a monopsonist position. This is a rather unusual situation, but one that is very advantageous for companies such as LMT.

LMT has a strong and long-term sustainable competitive advantage ensuing from the fact that its products are developed and manufactured at an extremely high level of technology and complexity, its development and contract cycles are measured in decades, and the costs for the government to switch to alternative suppliers are high. Moreover, part of the production is classified as secret, which further takes the wind out of the sails of potential competitors. This results in a very high return on capital and admittedly a slowly but steadily growing business.

In most NATO countries, which are LMT’s customers, defense outlays are based upon the size of GDP. This is currently growing very fast in nominal terms due to inflation in most countries. A number of countries have also announced significant increases in defense budgets, whether it be Germany, which aims to get to the NATO-agreed 2% of GDP, or Poland, which wants to spend more than twice as much on defense…” (Click here to see the full text)

3. Honeywell International Inc. (NASDAQ:HON)

Number of Hedge Fund Holders: 53

Honeywell International Inc. (NASDAQ:HON) operates as a diversified technology and manufacturing company worldwide. The company’s Aerospace segment offers auxiliary power units, propulsion engines, integrated avionics, environmental control and electric power systems, engine controls, flight safety, navigation hardware, satellite and space components, aircraft wheels and brakes, and maintenance services. Honeywell International Inc. (NASDAQ:HON) is one of the best aerospace stocks to consider. 

On December 1, Honeywell International Inc. (NASDAQ:HON) announced that it is expanding its partnership with Nexceris, a manufacturer of Li-ion Tamer lithium-ion gas detection solutions, to improve safety of electric vehicle batteries. The companies will collaborate with top global auto manufacturers to provide superior gas detection solutions in EV battery packs which would allow for early intervention and make electric vehicles safer.

Citi analyst Andrew Kaplowitz on December 9 raised the price target on Honeywell International Inc. (NASDAQ:HON) to $248 from $213 and reiterated a Buy rating on the shares. The analyst noted that megatrends and “still emerging fiscal tailwinds” should help moderate potential downside for industrials in a weak macroeconomic backdrop.

According to Insider Monkey’s data, 53 hedge funds were long Honeywell International Inc. (NASDAQ:HON) at the end of Q3 2022, compared to 42 funds in the prior quarter. Ric Dillon’s Diamond Hill Capital is a significant position holder in the company, with 1.13 million shares worth $190.2 million. 

Here is what ClearBridge Investments has to say about Honeywell International Inc. (NASDAQ:HON) in its Q1 2021 investor letter:

“The portfolio’s quality bias and valuation discipline have generated compelling returns over time with typically strong relative results in more challenging environments as it did through the first three quarters of 2020. However, that same quality bias tends to create a more challenging relative performance environment for the Strategy during periods of sharp economic acceleration, which tend to benefit stocks that are more commodity linked or of lower quality. This has been the case during the vaccine- and stimulus-driven rally experienced late last year and during the most recent quarter. Sectors that lagged in the quarter included industrials, Honeywell also lagged in the quarter after previously generating strong returns over extended periods.”

2. Raytheon Technologies Corporation (NYSE:RTX)

Number of Hedge Fund Holders: 55

Raytheon Technologies Corporation (NYSE:RTX) is one of the top aerospace stocks to monitor. The aerospace and defense company provides systems and services for the commercial, military, and government customers worldwide. It operates through four segments – Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space, and Raytheon Missiles & Defense. On December 12, Raytheon Technologies Corporation (NYSE:RTX) announced that its board has authorized a new share buyback program of up to $6 billion.

On December 8, Citi analyst Jason Gursky initiated coverage of Raytheon Technologies Corporation (NYSE:RTX) with a Neutral rating and a $104 price target. The analyst is constructive on the outlook for Raytheon Technologies Corporation (NYSE:RTX) and both its commercial and defense end markets over the long-term.

According to Insider Monkey’s Q3 data, 55 hedge funds were bullish on Raytheon Technologies Corporation (NYSE:RTX), compared to 45 funds in the prior quarter. Ken Fisher’s Fisher Asset Management is the largest stakeholder of the company, with 8.5 million shares worth $702 million. 

Carillon Tower made the following comment about Raytheon Technologies Corporation (NYSE:RTX) in its Q3 2022 investor letter:

“Raytheon Technologies Corporation (NYSE:RTX) announced strong results led by strength in its commercial segment, but weakness in its defense business led to investor consternation. Management guided to a recovery in this segment, citing both transitory supply chain issues and continued strong demand.”

1. TransDigm Group Incorporated (NYSE:TDG)

Number of Hedge Fund Holders: 63

TransDigm Group Incorporated (NYSE:TDG) was founded in 1993 and is based in Cleveland, Ohio. The company designs, produces, and supplies aircraft components in the United States and internationally. TransDigm Group Incorporated (NYSE:TDG) operates through Power & Control, Airframe, and Non-Aviation segments. It is one of the premier aerospace stocks to invest in. 

On November 10, TransDigm Group Incorporated (NYSE:TDG) reported a Q3 non-GAAP EPS of $5.50 and a revenue of $1.51 billion, outperforming Wall Street estimates by $0.27 and $10 million, respectively. In FY 2023, net sales are anticipated to be in the range of $5.99 billion to $6.19 billion, versus a consensus of $6.06 billion.

Morgan Stanley analyst Kristine Liwag on December 12 maintained an Overweight rating on TransDigm Group Incorporated (NYSE:TDG) but lowered the price target on the shares to $765 from $801 as she assessed where aerospace companies are in their recovery journey versus their historical valuation range and rolled forward her valuations among those in the group. She remains bullish on the ongoing aerospace recovery next year, noting that global air traffic is now at nearly 75% of pre-COVID-19 levels as of September and full normalization is “likely” in 2023.

According to Insider Monkey’s data, 63 hedge funds were long TransDigm Group Incorporated (NYSE:TDG) at the end of Q3 2022, compared to 66 funds in the prior quarter. Sharlyn C. Heslam’s Stockbridge Partners is the largest stakeholder of the company, with 1.60 million shares worth $841 million. 

Here is what Vulcan Value Partners has to say about TransDigm Group Incorporated (NYSE:TDG) in its Q2 2022 investor letter:

“TransDigm Group Inc. is an aerospace manufacturing firm that provides highly engineered, niche components for use on commercial and military aircraft. The vast majority of the company’s profits come from aftermarket sales of sole-sourced products. The company produces high levels of free cash flow and has an effective, shareholder-oriented management team who are good capital allocators. Despite the company’s strong results during the quarter and solid outlook, its stock price declined.”

You can also take a look at 15 Best Affordable Stocks To Buy Now and Top 15 Chinese Companies on NASDAQ.