In this article, we will discuss the 5 defense stocks to buy amid escalating geopolitical tensions. If you want to explore similar stocks, you can read 10 Defense Stocks to Buy Amid Escalating Geopolitical Tensions.
5. General Dynamics Corporation (NYSE:GD)
Number of Hedge Fund Holders: 42
On August 25, General Dynamics Corporation (NYSE:GD) announced that it has secured a $1.14 billion contract from the U.S. Army to provide 250 Abrams battle tanks to Poland. On September 16, the U.S. Army awarded General Dynamics Corporation (NYSE:GD) with a $133 million contract for MK80 series general purpose Tritonal bomb components.
On August 29, RBC Capital analyst Ken Herbert started coverage of General Dynamics Corporation (NYSE:GD) with an Outperform rating and a $275 price target.
Shares of General Dynamics Corporation (NYSE:GD) have surged 7% year to date, as of September 23. The company is also a dividend grower and has a track record of 27 years of consistent dividend increases. As of September 23, the stock is offering a forward dividend yield of 2.21% which the company supports with free cash flows of $4.8 billion.
Insider Monkey spotted 42 hedge funds that held stakes in General Dynamics Corporation (NYSE:GD) at the close of Q2 2022. The total stakes of these hedge funds amounted to $7.71 billion.
As of June 30, Longview Asset Management is the largest shareholder in General Dynamics Corporation (NYSE:GD) and owns over 30 million shares of the company.
Here is what Oakmark Fund had to say about General Dynamics Corporation (NYSE:GD) in its second-quarter 2022 investor letter:
“Finally, General Dynamics Corporation (NYSE:GD)’s defense business enabled the stock to resist the bear market’s downward pressure. We eliminated the position to fund more attractive holdings.”
4. Raytheon Technologies Corporation (NYSE:RTX)
Number of Hedge Fund Holders: 45
At the close of Q2 2022, 45 hedge funds were bullish on Raytheon Technologies Corporation (NYSE:RTX) and held stakes worth $1.84 billion in the company.
This July, RBC Capital analyst Ken Herbert revised his price target on Raytheon Technologies Corporation (NYSE:RTX) to $115 from $125 and maintained a buy-side Outperform rating on the shares. On July 27, Wells Fargo analyst Matthew Akers adjusted his price target on Raytheon Technologies Corporation (NYSE:RTX) to $98 from $106 and reiterated an Equal Weight rating on the shares.
On September 21, Raytheon Technologies Corporation (NYSE:RTX) secured a $160 million contract to manufacture Dual Band Radar, or DBR, systems for the U.S. Navy. On September 22, the U.S. Airforce awarded Raytheon Technologies Corporation (NYSE:RTX) a $985 million contract for the supply of Hypersonic Attack Cruise Missiles.
As of June 30, Fisher Asset Management owns more than 8.4 million shares of Raytheon Technologies Corporation (NYSE:RTX) and is the top shareholder in the company. The investment covers 0.57% of Ken Fisher’s 13F portfolio.
Here is what Carillon Tower Advisers had to say about Raytheon Technologies Corporation (NYSE:RTX) in its first-quarter 2022 investor letter:
“Raytheon (NYSE:RTX) outperformed along with other defense contractors on rising geopolitical concerns. Military sales account for more than half of revenue. Key franchise programs include the Patriot Missile and F-35 engine, which have provided visible support through most of the decade.”
3. Northrop Grumman Corporation (NYSE:NOC)
Number of Hedge Fund Holders: 45
Wall Street analysts are bullish on Northrop Grumman Corporation (NYSE:NOC). On August 29, RBC Capital analyst Ken Herbert started coverage of Northrop Grumman Corporation (NYSE:NOC) with a Sector Perform rating and a $550 price target. On August 31, Susquehanna analyst Charles Minervino raised his price target on Northrop Grumman Corporation (NYSE:NOC) to $560 from $530 and maintained a Positive rating on the shares.
On September 22, the U.S. Airforce selected Northrop Grumman Corporation (NYSE:NOC) and Raytheon Technologies Corporation (NYSE:RTX) for the development of Hypersonic Attack Cruise Missiles. Shares of Northrop Grumman Corporation (NYSE:NOC) have surged 25% year to date, as of September 23.
At the end of Q2 2022, Insider Monkey spotted 45 hedge funds long Northrop Grumman Corporation (NYSE:NOC) with stakes worth $992.8 million. This is compared to 39 hedge funds in the preceding quarter with stakes worth $940.3 million. The hedge fund sentiment for the stock is positive.
As of June 30, Yacktman Asset Management is the most prominent investor in Northrop Grumman Corporation (NYSE:NOC) with stakes worth $208 million.
Here is what LRT Capital Management had to say about Northrop Grumman Corporation (NYSE:NOC) in its second-quarter 2022 investor letter:
“Based in Virginia, Northrop Grumman 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, General Dynamics Corporation, Lockheed Martin Corporation, Northrop Grumman Corporation, and Raytheon Technologies Corporation.
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.
The company’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 spilled every year about the “massive” U.S. defense budget7 that critics claim is “out of control”8. 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,9 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 defense spending to grow faster than GDP over the next decade.”
2. The Boeing Company (NYSE:BA)
Number of Hedge Fund Holders: 51
On August 30, The Boeing Company (NYSE:BA) announced that it has secured a $5 billion contract from the U.S. Missile Defense Agency for the integration and testing of the Ground-Based Midcourse Defense Element System. On August 31, The Boeing Company (NYSE:BA) was awarded a $927 million contract from the U.S. Airforce to deliver four KC-46A aircraft to Israel.
This September, BofA analyst Ronald Epstein raised his price target on The Boeing Company (NYSE:BA) to $175 from $170 and maintained a Neutral rating on the shares. On September 8, Morgan Stanley analyst Kristine Liwag raised her price target on The Boeing Company (NYSE:BA) to $233 from $215 and maintained a buy-side Overweight rating on the shares.
At the end of Q2 2022, 51 hedge funds were long The Boeing Company (NYSE:BA) with stakes worth $1.49 billion. This is compared to 52 positions in the previous quarter with stakes worth $1.36 billion.
As of June 30, Viking Global is the largest shareholder in The Boeing Company (NYSE:BA) with stakes worth $190 million. The investment covers 0.87% of Andreas Halvorsen’s 13F portfolio.
Here is what Meridian Funds had to say about The Boeing Company (NYSE:BA) in its second-quarter 2022 investor letter:
“We similarly remained invested in largely out-of-favor The Boeing Company (NYSE:BA), a global leader in developing and producing commercial jet aircraft. Due to some self-inflicted wounds and a bit of bad luck, as well as dramatic declines in air travel early in the pandemic, investor sentiment for this company has simply been awful. As part of our contrarian thinking, however, we view the business as critical to global transportation needs and see multiple catalysts to improve sentiment. In addition to the current surge in air travel worldwide, ramped up production of the 737 MAX aircraft and the pending restart of 787 Dreamliner deliveries should help turn broader sentiment. Additionally, we anticipate a meaningful inflection in cash flow as Boeing starts delivering aircraft currently in storage as well as the eventual expansion of its production in both core platforms.”
1. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 55
Lockheed Martin Corporation (NYSE:LMT) is surging in 2022. As of September 23, Lockheed Martin Corporation (NYSE:LMT) has gained 16.5% year to date and is offering a forward dividend yield of 2.67%, which the company supports with free cash flows of $7.45 billion.
Wall Street likes Lockheed Martin Corporation (NYSE:LMT). This July, Susquehanna analyst Charles Minervino reiterated his $539 price target and Positive rating on Lockheed Martin Corporation (NYSE:LMT). On August 29, RBC Capital analyst Ken Herbert started coverage of Lockheed Martin Corporation (NYSE:LMT) with a Sector Perform rating and a $460 price target.
On August 25, the U.S. State Department approved a Foreign Military Sale of $1.95 billion for 40 UH-60M Black Hawk Helicopters to the government of Australia. Lockheed Martin Corporation (NYSE:LMT) was named as the principal contractor for the deal. On August 29, Lockheed Martin Corporation (NYSE:LMT) announced that it has secured a $503 million contract from the U.S. Navy to deliver 12 MH-60R aircraft to Australia.
At the close of the second quarter of 2022, 55 hedge funds disclosed ownership of stakes in Lockheed Martin Corporation (NYSE:LMT) and held stakes worth $2.56 billion in the company. This is compared to 56 hedge funds in the previous quarter with stakes worth $2.44 billion.
As of June 30, GQG Partners owns more than 2 million shares of Lockheed Martin Corporation (NYSE:LMT) and is the top shareholder in the company.
You can also take a look at 15 Best Security Stocks to Buy Now and 10 Best Defense Stocks To Buy Now.
