In this article, we discuss the 5 defense stocks US senators love. If you want to read about some war stocks popular in the Senate, go directly to 10 Defense Stocks US Senators Love.
5. L3Harris Technologies, Inc. (NYSE:LHX)
Number of Hedge Fund Holders: 40
L3Harris Technologies, Inc. (NYSE:LHX) provides aerospace and defense technology services. Some of the renowned members of the US Senate who hold positions in the stock, as of August 2021, include Shelley Moore and Tom Carper.
Hedge funds have been loading up on L3Harris Technologies, Inc. (NYSE:LHX) in recent months. At the end of the fourth quarter of 2021, 40 hedge funds in the database of Insider Monkey held stakes worth $1.1 billion in L3Harris Technologies, Inc. (NYSE:LHX), compared to 29 in the preceding quarter worth $492 million.
4. Northrop Grumman Corporation (NYSE:NOC)
Number of Hedge Fund Holders: 33
Northrop Grumman Corporation (NYSE:NOC) is an aerospace and defense firm. The hedge fund sentiment around the stock is largely positive. At the end of the fourth quarter of 2021, 33 hedge funds in the database of Insider Monkey held stakes worth $561 million in Northrop Grumman Corporation (NYSE:NOC), up from 29 in the preceding quarter worth $910 million.
In June 2021, US Senate member Charles Roberts revealed a purchase of Northrop Grumman Corporation (NYSE:NOC) stock on behalf of his spouse worth somewhere around $15,000 to $50,000. The transaction in this regard took place a month before it was made public.
In its Q4 2020 investor letter, Artisan Partners Limited Partnership, an asset management firm, highlighted a few stocks and Northrop Grumman Corporation (NYSE:NOC) was one of them. Here is what the fund said:
“New purchases include Northrop Grumman Corporation (NYSE:NOC). Northrop Grumman is a leader in manned aircraft, unmanned aircraft, spacecraft and missile-defense systems. We initiated a position in November 2020, as we believe the name is trading at an undeserved discount, despite having the potential to accelerate revenue over the next 24 months. In 2020, Northrop Grumman Corporation (NYSE:NOC) signed a contract to work with the US Air Force on their Ground Based Strategic Deterrent (GBSD) and B21 bomber. We believe the company’s portfolio is well-positioned with a highly desirable space segment business, significant classified content and GBSD driving growth. While the market has been focused on a “blue wave” risk to the defense budget, the industry is typically driven by threat assessment rather than budget constraints. If budget cuts were ever to affect the US Army, that customer represents less than 10% of the company’s revenue. This reinforces our belief that Northrop Grumman Corporation (NYSE:NOC) is well-positioned for the future and trades at an attractive valuation.”
3. BWX Technologies, Inc. (NYSE:BWXT)
Number of Hedge Fund Holders: 26
BWX Technologies, Inc. (NYSE:BWXT) makes and sells nuclear components. Elite hedge funds hold large stakes in the company. Among the hedge funds being tracked by Insider Monkey, Wisconsin-based investment firm Cardinal Capital is a leading shareholder in BWX Technologies, Inc. (NYSE:BWXT) with 1.6 million shares worth more than $79 million.
One of the prominent members of the US Senate who holds large stakes in BWX Technologies, Inc. (NYSE:BWXT) stock is David Perdue. Perdue has made at least 15 trades related to the stock in the past few months totaling over 145,000 in volume. Only house member Rohit Khanna has more trades of BWX Technologies, Inc. (NYSE:BWXT) stock.
In its Q3 2021 investor letter, Upslope Capital Management, an asset management firm, highlighted a few stocks and BWX Technologies, Inc. (NYSE:BWXT) was one of them. Here is what the fund said:
“BWX Technologies, Inc. (NYSE:BWXT) designs and produces nuclear reactors, components and fuel, primarily for the U.S. Government and Navy (and, more recently, NASA). The company is the sole supplier for its Naval products (~75% of sales), which are used for the power and propulsion of all of the Navy’s aircraft carriers and submarines. With nuclear subs (aka “boomers”) forming the backbone of the “Sea” leg of the Nuclear Triad, BWX plays a vital and sensitive role supporting the national security of the United States. Of course, BWX is exceptionally well-positioned should the saber-rattling vis-à-vis China continue. The recent Aukus security pact, which may eventually benefit BWX, illustrates the urgent and strategic importance of maintaining a modern nuclear-powered sub fleet.
Even if relations with China stabilize (and hopefully they do), BWX Technologies, Inc. (NYSE:BWXT) shares seem poised to outperform. After four years of essentially going nowhere, the stock currently trades near the low-end of its historical valuation range – just over 13x EBITDA vs. typical range of 13-16x. With a literal monopoly position (albeit against a sole purchaser), BWX has historically generated modest top-line growth with attractive returns on capital (mid-20s). Given the stability of the business and its competitive position, as well as the current geopolitical backdrop, current valuation seems very reasonable.
Importantly, beginning in 2017 BWX Technologies, Inc. (NYSE:BWXT) embarked on an aggressive capex expansion program, eventually tripling capex as a percentage of sales. In addition to ramping capacity to support Navy growth, BWX spent heavily developing its medical/radioisotope business. While not yet concluded, there is light at the end of the tunnel that should bode well for shares. 2020 appears to have been the capex peak and BWX seems on track for more normalized capex by the end of 2022. This should lead to de-levering the balance sheet (from an already-reasonable 3x gross debt/EBITDA), a potential acceleration in capital returned to shareholders, and/or the prospect of increased M&A.
Lastly, while BWX’s core today is its Naval operations, there is long-term optionality from the other units (~25% of revenue), which are currently focused on Canadian nuclear power (fuel and components), medical, space (NASA) power, and microreactors. BWX faces little competition, if any, across many of these areas. A sizable portion (>50%) of the recent capex program was also invested in a new Mo-99/Tc99 radioisotope (essentially a cleaner, more cost efficient alternative to current products on market – used in cardiology, oncology, neurology, and diagnostics) production line that should lead to an acceleration in growth outside of Naval operations.
Major risk factors for BWX Technologies, Inc. (NYSE:BWXT) include the possibility of physical accidents, production defects and resulting liabilities, as well as cost pressures due to strained government budgets and/or rising input costs, some leverage (~2x net), and ESG flow headwinds (not fundamental, of course, but a reality).”
2. Booz Allen Hamilton Holding Corporation (NYSE:BAH)
Number of Hedge Fund Holders: 25
Booz Allen Hamilton Holding Corporation (NYSE:BAH) provides defense management and technology consulting services. Some of the prominent members of the US Senate who hold large stakes in the company, as of August 2021, include Tom Carper and Bill Hagerty.
Booz Allen Hamilton Holding Corporation (NYSE:BAH) is one of the top defense stocks in the hedge fund universe. At the end of the fourth quarter of 2021, 25 hedge funds in the database of Insider Monkey held stakes worth $193 million in Booz Allen Hamilton Holding Corporation (NYSE:BAH), compared to 23 in the preceding quarter worth $198 million.
1. Huntington Ingalls Industries, Inc. (NYSE:HII)
Number of Hedge Fund Holders: 23
Huntington Ingalls Industries, Inc. (NYSE:HII) provides services for military ships. Hedge funds have been piling into the stock in recent months. At the end of the fourth quarter of 2021, 23 hedge funds in the database of Insider Monkey held stakes worth $199 million in Huntington Ingalls Industries, Inc. (NYSE:HII), compared to 15 in the preceding quarter worth $163 million.
A renowned member of the US Senate who holds a position in Huntington Ingalls Industries, Inc. (NYSE:HII) stock, as of August 2021, is Tina Smith. Smith serves on the Commission on Security and Cooperation in Europe.
You can also take a peek at 10 Best Healthcare Dividend Stocks to Buy Now and 10 Dividend Stocks with Over 20 Years of Dividend Increases.
