In this article, we discuss the 5 best up and coming stocks to invest in. If you want to read our comprehensive analysis of these stocks and the current market situation, go directly to 10 Best Up and Coming Stocks To Invest In.
5. Northrop Grumman Corporation (NYSE:NOC)
Number Of Hedge Fund Holders: 39
Northrop Grumman Corporation (NYSE:NOC) is an American multinational aerospace and defense technology company that specializes in commercial aerospace, electronics, and information-technology products and services. In early April, the defense firm was awarded a $254.42 million firm-fixed-price modification to a previously awarded contract to exercise an option for production of its Surface Electronic Warfare Improvement Program Block 3 Hemisphere systems, which is expected to be completed by September 2025.
Northrop Grumman Corporation (NYSE:NOC) declared a quarterly dividend of $1.73 per share on May 17, which would be payable on June 15, 2022, to shareholders of record as of the close of business on May 31, 2022.
On May 12, Argus analyst John Eade raised the price target on Northrop Grumman Corporation (NYSE:NOC) to $495 from $420 and maintained a Buy rating on the shares. According to the analyst, the defense firm has consistently delivered positive surprises to investors on Wall Street in recent years, regardless of whether defense spending was rising or falling.
Based on Insider Monkey’s Q1 data, Northrop Grumman Corporation (NYSE:NOC) was found in the public stock portfolios of 39 hedge funds, up from 33 funds in Q4 2022. Donald Yacktman’s Yacktman Asset Management owned a sizable position in Northrop Grumman Corporation (NYSE:NOC) in the first quarter of 2022, with 435,159 shares worth $194.6 million.
In its Q1 2022 investor letter, LRT Capital Management, an asset management firm, highlighted a few stocks and Northrop Grumman Corporation (NYSE:NOC) was one of them. Here is what the fund said:
“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 has resulted in the US defense market being 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 has allowed Northrop Grumman Corporation (NYSE:NOC) 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 approximate 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’ 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-18, the F-35 and the F-22. Northrop was the sole bidder on the contract to develop the next generation of intercontinental ballistic missiles; Raytheon dominates missile systems; and so on.
Northrop’s revenue growth over the past decade has been mediocre but even that has led to impressive shareholder returns that have far outpaced the S&P500. What’s more, we believe that revenue growth may accelerate in the next few years. A lot of ink is spilled every year about the “massive” U.S. defense budget that critics claim is “out of control”. Given this, you might be surprised to hear that U.S. defense spending as a share of GDP is at the lowest level in recorded history, at a mere 3.8%. In other words, U.S. military spending could double and not be out of line with historical norms. While we are not calling for a new Cold War, given the global instability we are witnessing, it is not unreasonable to expect U.S. defense spending to grow faster than GDP over the next decade.”
