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 12 Best Aerospace Stocks To Buy. 

5. Northrop Grumman Corporation (NYSE:NOC)

Number of Hedge Fund Holders: 49

Northrop Grumman Corporation (NYSE:NOC) operates as an aerospace and defense company worldwide. The company runs through Aeronautics Systems, Defense Systems, Mission Systems, and Space Systems segments. On February 16, Northrop Grumman Corporation (NYSE:NOC) declared a $1.73 per share quarterly dividend, in line with previous. The dividend is distributable on March 15, to shareholders of record on February 27. It is one of the best aerospace stocks to invest in. 

On February 6, Credit Suisse analyst Scott Deuschle reiterated an Outperform rating on Northrop Grumman Corporation (NYSE:NOC) but lowered the firm’s price target on the shares to $490 from $500. The firm is also trimming Aeronautics’ EBIT forecast on updated B-21 modeling.

According to Insider Monkey’s fourth quarter database, 49 hedge funds were bullish on Northrop Grumman Corporation (NYSE:NOC), compared to 46 funds in the prior quarter. Rajiv Jain’s GQG Partners is the largest stakeholder of the company. 

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. Raytheon Technologies Corporation (NYSE:RTX)

Number of Hedge Fund Holders: 51

Raytheon Technologies Corporation (NYSE:RTX) was incorporated in 1934 and is headquartered in Arlington, Virginia. It is an aerospace and defense company that specializes in systems and services for the commercial, military, and government customers worldwide. It operates through four segments – Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space, and Raytheon Missiles & Defense. Raytheon Technologies Corporation (NYSE:RTX) is one of the best aerospace stocks to monitor. 

On February 17, Raytheon Technologies Corporation (NYSE:RTX)’s Collins Aerospace division was awarded a $135 million contract by the U.S. Air Force Life Cycle Management Center to produce state-of-the-art propellers for C-130 planes. Under the terms of the contract, Collins will manufacture and provide support for the NP2000 propeller systems, along with the necessary electronic control system and spare parts. The work will be carried out in Windsor Locks, Connecticut.

Citi analyst Jason Gursky raised the firm’s price target on Raytheon Technologies Corporation (NYSE:RTX) to $106 from $104 and kept a Neutral rating on the shares on January 26, following the Q4 results.

According to Insider Monkey’s fourth quarter database, 51 hedge funds were bullish on Raytheon Technologies Corporation (NYSE:RTX), compared to 55 funds in the prior quarter. Dmitry Balyasny’s Balyasny Asset Management is the largest stakeholder of the company. 

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.”

3. Lockheed Martin Corporation (NYSE:LMT)

Number of Hedge Fund Holders: 53

Lockheed Martin Corporation (NYSE:LMT) is ​​a security and aerospace company that specializes in the research, design, manufacture, 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. It is one of the top aerospace stocks to consider. 

On February 6, Scott Deuschle, an analyst at Credit Suisse, upgraded Lockheed Martin Corporation (NYSE:LMT) from Underperform to Outperform and raised the price target from $427 to $510. The decision was based on Credit Suisse’s revised industry outlook, increased confidence in Lockheed Martin Corporation (NYSE:LMT)’s growth prospects, and a convergence of the firm’s out-year EBIT growth forecasts with those of Northrop Grumman. According to Credit Suisse, this suggests that Lockheed Martin Corporation (NYSE:LMT)’s relative valuation multiple will improve. The previous Underperform rating was mainly due to a weak book-bill ratio, but Credit Suisse noted that the company has now reported three consecutive quarters with a ratio of over 1.0, indicating a positive trend.

According to Insider Monkey’s Q4 data, 53 hedge funds were long Lockheed Martin Corporation (NYSE:LMT), and John Overdeck and David Siegel’s Two Sigma Advisors is a significant position holder in the company, with 886,300 shares worth $431 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)

2. The Boeing Company (NYSE:BA)

Number of Hedge Fund Holders: 53

The Boeing Company (NYSE:BA) was incorporated in 1916 and is based in Arlington, Virginia. The company designs, manufactures, services, and supports commercial jetliners, military aircraft, satellites, missile defense, and human space flight and launch systems worldwide. The company operates through four segments – Commercial Airplanes, Defense, Space & Security, Global Services, and Boeing Capital. 

Sheila Kahyaoglu, an analyst at Jefferies, commented on reports from Leeham News and Airfinance Journal that certain 737 MAX deliveries are being delayed by up to a year due to a new software issue. However, according to the analyst, the problem with the Option Selection Software that is causing the delay is not actually new, and the estimated impact is around 30 to 40 aircraft. The analyst does not believe this issue will affect the delivery guidance for the year and maintained a Buy rating on The Boeing Company (NYSE:BA) shares on March 6, with a price target of $250.

According to Insider Monkey’s fourth quarter database, 53 hedge funds were bullish on The Boeing Company (NYSE:BA), up from 42 funds in the prior quarter. Phill Gross and Robert Atchinson’s Adage Capital Management is a prominent stakeholder of the company, with 1.3 million shares worth $250.2 million. 

Jackson Square Partners made the following comment about The Boeing Company (NYSE:BA) in its Q3 2022 investor letter:

“For The Boeing Company (NYSE:BA)–in short, we believe the worst of Boeing’s idiosyncratic issues are behind it, the airframe duopoly remains as protected as ever, and at current prices (where we’ve been adding), the stock is trading around ~6x FCF on 2025E. Current airframe production is running materially below expected travel demand over the next 5-10 years, creating a structural supply/demand imbalance that we believe will drive a decade of strong growth in civil aerospace from here. In our 2Q’22 correspondence, we described the attributes of our ideal growth ballast and said we hoped to convert another in the coming months – we believe Boeing checks all those boxes.”

1. TransDigm Group Incorporated (NYSE:TDG)

Number of Hedge Fund Holders: 71

TransDigm Group Incorporated (NYSE:TDG) was founded in 1993 and is based in Cleveland, Ohio. The company designs, manufactures, and distributes 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 best aerospace stocks to monitor. 

On February 28, Ronald Epstein, an analyst at Bank of America, increased the price target on TransDigm Group Incorporated (NYSE:TDG) from $770 to $890 and maintained a Buy rating on the shares. This follows what the analyst describes as “another quarter of impressive margin expansion.” The management of TransDigm Group Incorporated (NYSE:TDG) has also projected high-teens percentage growth in Commercial aftermarket sales, which BofA noted could potentially increase further if there is a stronger recovery in international air traffic and a faster reopening in China.

According to Insider Monkey’s fourth quarter database, 71 hedge funds were long TransDigm Group Incorporated (NYSE:TDG), compared to 63 funds in the prior quarter. Stockbridge Partners is the largest stakeholder of the company, with 1.60 million shares worth $1 billion. 

Vulcan Value Partners made the following comment about TransDigm Group Incorporated (NYSE:TDG) in its Q4 2022 investor letter:

“TransDigm Group Incorporated (NYSE:TDG) is an aerospace company making original equipment manufacturer and aftermarket parts for commercial and military aircraft. Approximately 90% of its net sales are from proprietary parts. TransDigm is the sole source provider for parts representing approximately 80% of its revenues. The company grew its EBITDA just over 20% in fiscal 2022 as air travel recovered from the COVID-19 downturn. We believe that the company will have another strong year in fiscal 2023.”

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