Aerospace and defense has long been one of the few industry sectors that can boast a successful history of consistently paying dividends. Which is why even though the iShares Dow Jones U.S. Aerospace & Defense ETF (ITA), which tracks U.S. aerospace and defense stocks, has remained relatively flat over the last 18 months, investors’ interest in the sector hasn’t showed signs of waning. But does the smart money tracked by Insider Monkey also find the sector attractive? And if so, in which stocks in particular? To answer these questions we decided to analyze the portfolio data submitted by the more than 730 hedge funds that we track in their most recent 13F filings. Read on to find out which were the five most popular aerospace and defense stocks among hedge funds at the end of the second quarter.
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Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith (and money) in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 60.4 percentage points, returning 118% (read the details here). Follow the smart money into only their best investment ideas all while avoiding their high fees.
5. Raytheon Company (NYSE:RTN)
Investors with Long Positions (as of June 30): 37
Aggregate Value of Investors’ Holdings (as of June 30): $905.50 Million
In spite of an 11.8% decline in its shares during the second quarter, investors’ interest in defense contractor Raytheon Company (NYSE:RTN) saw a massive jump, with the number of hedge funds that owned a stake in the company going up by 12 and the aggregate value of their holdings in the company increasing by over 50% during that period. It is not hard to figure out why hedge funds are generally bullish on the company, as it continues to win contract after contract from several government agencies, the most recent ones being six defense contracts worth $355 million in total from the Pentagon on August 31, as well as a $102 million potential value contract extension from NASA on August 23. Among the hedge funds that increased its stake in the company significantly during the April-June period was Israel Englander‘s Millennium Management, which at the end of June held slightly over 1.4 million shares of the company.
4. Lockheed Martin Corporation (NYSE:LMT)
Investors with Long Positions (as of June 30): 36
Aggregate Value of Investors’ Holdings (as of June 30): $1.13 Billion
Lockheed Martin Corporation (NYSE:LMT) was another stock in the defense and aerospace sector that saw hedge fund ownership going up during the second quarter, by seven firms, even though its shares fell during that period, ending the quarter down by 7.7%. However, unlike Raytheon Company (NYSE:RTN), the aggregate value of investors’ holdings in Lockheed Martin Corporation (NYSE:LMT) dropped by $199 million during the second quarter. After remaining sideways in the $185-$195 range throughout the first half of the year, Lockheed Martin Corporation (NYSE:LMT)’s stock started climbing at the beginning of July in anticipation of good second quarter numbers from the company. According to industry experts, the company is set to be the biggest beneficiary of Japan’s new defense budget, considering the country needs to upgrade its old fleet of F-2 and F-15 fighters. With its purchase of 187,291 shares, Michael Messner‘s Seminole Capital (Investment Mgmt) was one of the hedge funds that initiated a stake in Lockheed Martin Corporation (NYSE:LMT) during the second quarter.
3. General Dynamics Corporation (NYSE:GD)
Investors with Long Positions (as of June 30): 40
Aggregate Value of Investors’ Holdings (as of June 30): $6.39 Billion
General Dynamics Corporation (NYSE:GD) saw a decline in its popularity among hedge funds from the end of March, when there were 45 funds with aggregate investments worth $6.75 billion in the company. However, it’s the only company in our list whose stock appreciated during the second quarter, ending the quarter up by 5.4%. The company came out with better-than-expected second quarter results on July 29, reporting EPS of $2.27 on revenue of $7.90 billion, compared to analysts’ estimates of EPS of $2.06 on revenue of $7.68 billion. At the end of June, James A. Star‘s Longview Asset Management continued to remain the largest shareholder of General Dynamics Corporation (NYSE:GD) among the hedge funds we track, holding over 33.32 million shares.
2. Boeing Co (NYSE:BA)
Investors with Long Positions (as of June 30): 44
Aggregate Value of Investors’ Holdings (as of June 30): $1.60 Billion
After a 15.4% rise in the first quarter, shares of aerospace behemoth Boeing Co (NYSE:BA) saw a decline of 7% during the second quarter. At the same time, the number of hedge funds that owned a stake in the company declined by six, though the aggregate value of hedge funds’ holdings appreciated by $270 million. According to recent reports, the company is trying to slow the pace of the mergers and acquisitions happening among its supplier base. Boeing Co (NYSE:BA) recently announced that it has completed the configuration of its 777-9 jet, thereby letting investors know that it’s on track to deliver the first aircraft on schedule. Experts believe that the launch of its long-range 777X jets will help it boost its market share. Doug Silverman and Alexander Klabin‘s Senator Investment Group became the second-largest shareholder of Boeing Co (NYSE:BA) among the hedge funds tracked by us, purchasing 1.5 million shares of the company during the second quarter.
1. United Technologies Corporation (NYSE:UTX)
Investors with Long Positions (as of June 30): 57
Aggregate Value of Investors’ Holdings (as of June 30): $2.94 Billion
Even though its ownership among hedge funds fell by three and the aggregate value of investors’ holdings declined by 8.4% during the second quarter, United Technologies Corporation (NYSE:UTX) turned out to be hedge funds’ favorite stock in the aerospace and defense sectors as of June 30. Whether it can hold on to its top position during the third quarter is a big question mark right now as since the beginning of July its shares have endured a decline of over 18%. On August 31, analysts at Barclays downgraded United Technologies Corporation (NYSE:UTX)’s stock to ‘Equal-Weight’ from ‘Overweight’ and also reduced their price target to $100 from $120, which now represents a potential upside of 11% from the stock’s current price. Among the funds we cover, each of the top five shareholders of the company at the end of June reported increasing their stakes in it during the second quarter, including Ric Dillon‘s Diamond Hill Capital , which owned slightly above 3.47 million shares.
Disclosure: None
