5 Best Defense Stocks to Buy for 2021

Below we presented the list of 5 best defense stocks to buy for 2021. For a detailed discussion and a more comprehensive list see the 10 Best Defense Stocks to Buy for 2021.

5. Northrop Grumman Corporation (NYSE: NOC)

Northrop ranks 5th on the list of 10 best defense stocks to buy for 2021. The company is one of the biggest aerospace and defense technology players in the world, with over $33 billion in annual revenue, as of 2019. The company is involved in some of the most consequential projects for the U.S. government, including the development of the James Webb Space Telescope, an orbiting observatory scheduled to launch 2021; and production of the solid rocket boosters for NASA’s Space Launch System program. In September 2020, the company won a $13.3 billion contract to develop the Ground Based Strategic Deterrent (GBSD) intercontinental ballistic missile.

Northrop Grumman was able to grow its topline by around 40% since 2017, yet trading at a forward P/E ratio of only 13 according to Yahoo Finance.  We believe it is a cheap stock and its 1.9% dividend yield may attract some income seeking investors in 2021.

Panayotis Takis Sparaggis’ Alkeon Capital Management is one of the leading hedge funds having stakes in the Virginia-based company, with $102.76 million worth of shares. Overall, 42 hedge funds had Northrop in their portfolios entering the fourth quarter, down from 47 funds a quarter earlier.

Florida-based L3Harris was formed as a result of a merger of L3 Technologies and Harris Corporation in June 2019. The company makes C6ISR systems and products, wireless equipment, tactical radios, avionics and electronic systems, night vision equipment and surveillance solutions.

The company beat third-quarter earnings estimates, and said it expects a revenue of $18.4 billion for 2020, up 4%.  In December, L3Harris won a five-year, $496 million contract to deliver prototype tactical jamming pods for the U.S. army.

A total of 42 hedge funds in Insider Monkey’s database have positions in L3Harris, as of the end of the third quarter. The total value of these stakes is $1.15 billion. Ric Dillon’s Diamond Hill Capital owns 1,024,507 shares of the company, worth $174 million.

Boeing’s Defense division manufactures defense, aerospace and military equipment. In April, the company’s leadership said that Boeing’s defense and space unit will outperform its commercial airplane business, which is suffering amid the grounding of 737 MAX following two crashes.

“Our government services, defense and space programs will provide critical stability for us moving forward. In fact, our work in these areas accounted for 45 percent of our overall revenue in 2019. That will obviously increase in the year ahead,” Boeing’s CEO Dave Calhoun said in April during the company’s first-quarter earnings call. Boeing’s defense division mainly deals in the development of manned and unmanned military aircraft and weapons, strike systems, surveillance and fighter jets.

Of the 816 hedge funds in our database, 43 had stakes in Boeing as of the end of the third quarter. The total value of these stakes is $1.70 billion. Here is what Miller Value Partners said about the stock when it was trading at $203:

“We’ve known Boeing for a long time. It’s always been a high quality company that’s traded for a premium valuation owing to its position as a global duopoly. We’d looked at it recently after weakness due to its highly publicized Max 737 issues, but it never got cheap enough for us to pull the trigger. After the pandemic, the stock went into freefall as its customer bases’ business dried up and people worried about its liquidity. The stock fell from $338 on February 19th when the S&P hit its high to a low of $89. We bought the stock after the new CEO Dave Calhoun said publicly that it would not take government capital if it required equity dilution because it had many other options. Our average price is just above $120 where it was trading for less than 7x what it earned in 2018. It will likely take a while to normalize to those earnings levels, but this business will survive and ultimately we will own a leader in a global duopoly. Even on depressed forecasts, the company currently has about a 10-15% free cash flow yield. If and when the economy normalizes, we think Boeing could be worth more than double its current price.”

2. Lockheed Martin Corporation (NYSE: LMT)

Lockheed Martin Corporation (NYSE: LMT) is one of the largest companies in the aerospace sector, providing key military equipment to the U.S. government. The company recently won a $1.29 billion contract for F-35 Lightning II Joint Strike Fighter air systems for the Air Force, Marine Corps, Navy, non-U.S. Department of Defense (DOD) participants and Foreign Military Sales customers. The company sold 123 F-35 fighter jets to the U.S. and its allies in 2020.

Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital is leading the 47 hedge funds tracked by Insider Monkey which have stakes in Lockheed as of the end of the September quarter, with $479.64 million worth of shares. Here is what RiverPark Advisors said about LMT earlier in 2020:

“Lockheed Martin is the world’s largest aerospace and defense contractor. With about 70% of its $60 billion in revenue from the U.S. government, the company is well positioned to benefit from U.S. defense budget growth, historically 5-6% per year, as well as increased global military spending. With a $144 billion backlog and deliveries forecast to reach 180 aircraft per year in 4- 5 years, we believe the company could grow at a significantly higher rate than overall defense budget growth over the next several years. The Street expects mid-single-digit revenue growth for the company, in-line with overall market growth. Due to its exposure to faster-growing programs, we believe the company can exceed that growth rate, and add margin expansion from increased scale. Further, strategic acquisitions, debt pay down, a 2% dividend yield, and continued share buybacks from $6 billion per year of free cash flow should lead to even greater shareholder returns.

We are also excited about LMT’s new – CEO James Taiclet – a military veteran and, over the previous 10 years the highly respected CEO of American Tower, a long-time Fund holding. Under Jim’s leadership, AMT grew its market capitalization from $2 billion to $100 billion and as both a shareholder and US citizen we look forward to him bringing his vast array of leadership skills to LMT.”

1. Raytheon Technologies Corp (NYSE: RTX)

Raytheon Technologies Corp (NYSE: RTX) is the best defense stock to buy for 2021 according to hedge funds. In April, the company completed its merger with United Technologies, creating a defense behemoth with about $74 billion total sales. The company recently said it will buy rocket and missile propulsion systems company Aerojet Rocketdyne (NYSE:AJRD) for $4.4 billion.  Raytheon stock reached its nine-month high in December 2020 after the company’s board approved a $5 billion stock buyback program.

Out of the 816 elite hedge funds tracked by Insider Monkey, 55 held stakes in Raytheon as of the end of the third quarter, compared to 59 funds a quarter earlier. The total value of these stakes is $2.99 billion.

Please also see 15 Most Powerful Weapons In The World and 10 Best Cheap Stocks To Buy Now.

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